GM Proves America Can Still Drive Big
NEW YORK ( MainStreet) Today at Cedar Lake Studio in New York, General Motors unveiled its Chevrolet and GMC 2015 SUV line-up with a focus on the all-new Chevy tanks, the Tahoe and Suburban. GM holds about 75% of the full-size SUV market, and it's selling the land yachts in droves: thus far in 2013, Chevy and GMC have sold more than 180,000 Tahoe, Suburban, Yukon, Yukon XL, and Denali SUVs with revenue on full-sized SUVs alone equal to that of a Fortune 400 company.
Of course, in a world of CAFE standards where fuel efficiency is king, it would seem gas-guzzlers are beset by manifold challenges. Amazingly, though, GM is dismantling that expectation.
Of course, SUVs in total are only 6.5% of the U.S. light vehicle market this year compared to 18% in 1999, according to Sean P. McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich. Sales this year of SUVs are up only 1.4% this year compared to 9.5% for the overall market.
Still, GM has legacy on its side, having produced the Suburban as a profitable niche vehicle since 1935, and in a sense it could be viewed as efficient, not just an industrial haul vehicle.
"It can hold seven people and produce better fuel mileage for seven occupants than three equivalent sub-compact cars to do the same job," McAlinden said.
Perhaps that's in part why GMwith dealers delivering 275,847 vehicles in the United States in August, up 15% compared with a year agohas been a hit with household consumers: retail sales increased 22% while fleet sales were down 8%. The large SUV segment was up 29% in August compared to the previous year.
"So the Suburban and Tahoe are now profitable niche vehicles like expensive 'gas guzzling' German sports cars, not used in construction but used by hedge fund managers to get to two power lunches a day," McAlinden said. "That doesn't mean these vehicles are very profitable it just means that their competition has withered away and the surviving models are the best of the bunch so they think in Texas."
Part of GM's strategy, indeed, has been sheer inertia to outlast others in the segment. Japanese competitors Toyota and Nissan are expected to exit the large-size SUV segment, leaving GM the opportunity to capture as much as 11 percentage points of market share, according to GM CFO Dan Ammann. Given that the average SUV has been on the road for 11 years, there's all the more opportunity for a new crop of buyers.