New SUVs start hot, but return of $3-a-gallon price may turn customers away from profitable fuel guzzlers.
Brett Clanton - The Detroit News April 21. 2006
General Motors Corp. is off to a good start with its new lineup of large SUVs, but rising gas prices could pose a threat to sales of the fuel-thirsty vehicles and sap momentum from a key piece of the automaker's turnaround efforts.
Gas prices, now at close to $3 per gallon, have not yet dampened demand of the new Chevrolet Tahoe, GMC Yukon and Cadillac Escalade. Hot sales of the profitable SUVs were one of the bright spots of GM's first quarter financial results, released Thursday.
But GM said it has noticed a "significant shift" away from V-6 engines to more fuel-efficient four cylinder motors in its passenger cars - a sign that fuel economy is driving buying decisions.
Creeping gas prices are unwelcome background noise as GM tries to recover from huge losses and woo customers back to the company with 20 new vehicles this year. Among the most important vehicles to GM's turnaround are its redesigned large SUVs and new full-size pickups, arriving later this year. GM remains heavily dependent on truck and SUV sales, even as it tries to improve its stance in cars and other segments.
While sales of full-size pickups have held steady, sales of large SUVs plummeted in 2005 after a hurricane-fed spike in gas prices last summer, with models such as the Ford Expedition and Toyota Sequoia seeing huge declines.
In a repeat of last year, experts warn that consumers are likely to be paying $3 per gallon by the end of April now that oil is exploding at more than $70 per barrel.
"My sense is if gas prices continue to go up, as they've started to, then you're going to see a greater shift" (away from big SUVs), said Brian Chee, managing editor of Autobytel.com, an automotive research Web site.
In a recent survey at the site, 76 percent of respondents said fuel economy was more important to them now than it was a year ago.
But GM officials say their large SUVs are the most fuel-efficient in the category - at better than 20 mpg on the highway. They contend that most buyers of large SUVs need the vehicles for specific purposes, come from higher-income households and are less swayed by shifts in gas prices.
Even so, the prospect of gas prices settling at $3 per gallon or higher is still troubling, said Fritz Henderson, GM's chief financial officer in a conference call Thursday to discuss first quarter results. "Are we concerned? Yes."
In the first quarter, GM said it collected $1,000 more in revenue per vehicle than it did a year ago. Much of the increase came from the new large SUVs, which are being sold with fewer rebates and fetching up to $7,000 more than their predecessors. David Fischer, owner of 10 GM dealerships in Michigan, said he can't keep the new SUVs on the lot.
"Every time we get a bunch in," he said, "they go out."
GM will roll out extended wheelbase versions of the SUVs in coming weeks, and will introduce redesigned versions of its Chevrolet Silverado and GMC Sierra pickups this fall.
GM's market share, earnings and cash flow should "all benefit materially over the next two years" from having the new trucks and SUVs in the lineup, said Brett Hoselton, analyst at KeyBanc Capital Markets. Yet that assumes that the price of a gallon of gas stays, at least roughly, where it is today.