2007 has been the most challenging and competitive sales environment the
industry has seen since 1998. Unfortunately, 2008 looks to be an even more
difficult year as the sub-prime crisis ripples through the economy, the housing
sector continues its slide, energy costs rise, and consumer debt continues
reaching new highs.
CSM Worldwide is forecasting light-vehicle sales to descend to a 10-year low of 15.8 million units in 2008. Luckily, General Motors faces the challenging market with the strongest product line-up it has fielded in quite some time.
As GM prepares for 2008, it does so as a different company. Over the past several years, many have come to know GM as the automaker that has driven sales volume with large-scale incentives. Today, General Motors is reducing incentives, managing inventory, and successfully rationalizing its global platform portfolio. Most important, GM is designing and producing attractive cars and trucks again. These combined actions and the new labor pacts are positioning GM for long-term success.
According to Autodata Corporation, GM's year-to-date incentives are down 12.8% compared to 2006. November's 2007 inventory is down 7.7% compared to November 2006. Reducing incentives is a strategic move meant to improve profitability and strengthen brands and residual values. GM would be unable to reduce incentives if it weren't for some of the difficult and painful moves it made to right-size its production base. We expect GM to now manage inventory by controlling production instead of providing generous incentives to move the metal. It is the attractive new products that can stand on their own merit that enable the automaker to pull back even further on incentives.
GM is at the start of what could be a significant product renaissance. Design is vastly improved as evidenced by CTS, Enclave, and the entire Saturn line-up. The Cadillac CTS is a formidable challenger to European and Japanese players in the entry level luxury sedan segment. The CTS features an integrated, interior design that utilizes high-quality, rich, and soft-touch materials. The vehicle's exterior design, highlighted by its bold, oversized front face, stands out. The vertical light pipes accent CTS's head and tail lamps. Look for these light pipes to become a signature Cadillac design cue. The rangetopping direct injection V6 produces 304 hp and 273 lb-ft of torque and delivers strong, refined performance.
The Buick Enclave, with its romantic flowing lines that are reminiscent of classic Buicks, is a hit. Enclave is pulling a desirable demographic into GM showrooms. According to GM, the median income for an Enclave buyer is $130,000 per year. The average age of Enclave buyers - 53 - is lower than the average age range of the mid sixties for Buick's car buyers. Ninety percent of buyers are opting for the more expensive CXL model. Dealer demand is typically 300-900% of scheduled production. Import-dominated Los Angeles is a top ten market for the Enclave. Impressively, 43% of Enclave buyers are new to GM.
Saturn is no longer the division known solely for its low-cost cars and outstanding dealership experience. Now Saturn is a stylish brand based largely on GM's European Opel vehicles. The Saturn Aura, featuring catchy exterior styling similar to the Opel Vectra, won the coveted "2007 North American Car of The Year." The new Saturn Vue offers an athletic driving experience one would expect from a German vehicle. The Sky convertible is a headturner, and the Outlook is a competitive full-size crossover based on GM's stout Lambda platform. New product is improving Saturn's financials and demographics. Saturn says average transaction prices are up 24% when comparing the first half of 2007 to 2005 data. The median incomes for Sky, Aura and Outlook buyers are $102k, $78k, and $101k respectively.
In conclusion, General Motors must consistently exceed consumer expectations over several product lifecycles in order to fully overcome the perception problem facing the domestic automakers. If GM continues improving its product design and execution in line with the evolution of the CTS, this period will be seen as the beginning of a product renaissance. In combination with product improvement, GM must continue making the structural changes needed to boost cost competitiveness in the hyper-competitive global auto industry.
David Terebessy can be reached via Email at DavidTerebessy@csmauto.com.
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