GM sees profit in big vehicles

By Herb Shuldiner MOTOR MATTERS | Friday, November 28, 2008

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Sales of full-size pickup trucks and Sport Utility Vehicles have dived since gasoline prices skyrocketed above the $4 per gallon level, but the slow sale of these big vehicles may have hit bottom, according to GM's Gary White, a corporate vice president and vehicle line executive for those vehicles.

"Everything we see is that full-size pickups are not a dead market," White says. "I wouldn't be the first one to blink and say get out of it."

White points to the demographics in the U.S. as a reason that full-size pickups are going to be around for a long time. In fact, White insists that pickups in particular remain a very profitable vehicle in GM's portfolio.

"We're making a hell of a lot more per unit now than we were 10 years ago," White says.

The Chevrolet Silverado and GMC Sierra are built on what GM labels the T900 architecture. "Jumbo" SUVs, such as the Cadillac Escalade, Chevrolet Tahoe and GMC Yukon, among others, are also built on this profitable platform.

White indicates that his crystal ball is too cloudy to say categorically whether full-size pickups and SUVs have reached the bottom of their sales slide. But he forecasts that full-size pickups can sustain a market of 2 million units and jumbo SUVs about 500,000 units and still earn healthy margins.

Large pickups' biggest sales year was 2004 with total volume of 2,498,706 units, according to Ward's AutoInfoBank data. For SUVs, the biggest sales year was 2004 with total volume of 1,032,248 units.

At their high point, GM was assembling the jumbo vehicles in seven plants that were working at 120 to 130 percent of capacity, White says. At peak production, GM produced more than 990,000 full-size pickup trucks alone one year.

White says GM currently leads the full-size pickup market with a 42 percent share of sales. GM's big SUV market share is about a point less, he says. White expects the pickup segment to come in under 2 million units this year compared to 2.194 million in 2007.

"At one point it looked like it was going to be 1.5 million, but it now looks like it will come closer to 2 million.

White feels assured that GM's pickups will hold their own against all-new 2009 Ford F-150 and 2009 Dodge Ram models that recently debuted.

"It's not like we've been sitting on our hands," he says. "We've increased the capability of our 1/2-ton trucks in anticipation of the competition's updates."

Among the improvements are a six-speed automatic transmission, a new aluminum block engine and other weight-reducing components that have resulted in the new XFE truck models dropping one test weight class in the EPA schedule. GM will also be offering an all-new High Output 4.5-liter diesel engine in its 1/2-ton trucks next spring. Diesel sales might capture 10 to 15 percent of total volume, White estimates. His overall prediction is that GM will not lose share to the new offerings.

"All the boats rise with the tide," he says. "The other guys have great trucks, but we're not standing still."

White says that GM is not counting on the current trend of lower fuel prices to be permanent and won't effect big pickup sales. He says there is a permanent constituency for those vehicles. The "urban cowboys" who bought pickups to make a lifestyle statement have left the segment and won't return.

Contractors and tradesmen who need big pickups for work will remain the core buyers. But a comeback of big pickup sales is tied to a comeback for housing, White says. That's one of the reasons he is refraining from closing down too much of GM's truck-building capacity. If a bump in demand occurs, he wants GM to be in a position to satisfy that.

White also sees a solid future for big SUVs. He says GM's forecasters sense the market for full-size SUVs is probably less than 500,000 units annually. "From what we see there are still people intending to buy vehicles that size," he says. He says there is also growing demand in the Middle East (where GM sells 60,000 full-size SUVs annually) and emerging markets, such as Russia.

There has also been acceptance of the new 2-Mode Hybrid system in the jumbo SUV segment.

In August, 20 percent of Cadillac Escalade sales were the hybrid models. White says that hybrid sales are profitable for GM, "but not as profitable as vehicles with conventional propulsion systems." The 2-Mode Hybrid system in full-size GM pickups becomes available in the first quarter of 2009.

Regardless of what happens to future gasoline prices, big pickups are so rooted in the American culture that it's difficult to see them vanishing from auto showrooms in the foreseeable future.

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