Bloomberg News

GM Surprise Hit Spark Shows Globalization of All Segments: Cars

June 24, 2013

Chevy Spark Conceived in South Korea Surprise Hit in U.S.

The Spark’s success today, 26,869 U.S. deliveries in its first 12 months, exceeds GM’s initial expectations by as much as 35 percent, said one person familiar with the company’s internal planning. Photographer: Jeff Kowalsky/Bloomberg

As a two-time Toyota buyer, Ashley Potts didn’t even think to look at a Chevrolet when she began shopping for a small car with better fuel efficiency.

“They’ve been big gas guzzlers,” Potts, 34, who works in human resources at a hotel in Boston, said last week. “I’d never given it much thought. I’d been happy with my Toyotas for 10 years.”

Then, during a chance encounter in April, she stumbled upon a Chevrolet Spark, a mini car that looks almost like a cartoon with its bulbous headlamps, exaggerated grille, a color palette with options such as Techno Pink and body length 3 feet (0.9 meter) shorter than a Toyota Corolla. It gave her a taste of the dramatic changes taking place at General Motors Co. (GM:US)’s dealerships across the U.S.

“It was fun to drive and it had all of the bells and whistles that I wanted,” she said of the Spark. She immediately bought a Spark, which starts at $12,170, and can come with features usually found on bigger cars, such as Bluetooth and keyless entry.

Modern GM has never successfully sold such a tiny car in the U.S. The Spark’s success today, 26,869 U.S. deliveries in its first 12 months, exceeds GM’s initial expectations by as much as 35 percent, said one person familiar with the company’s internal planning.

‘Some Pizazz’

GM, Ford Motor Co. (F:US) and Chrysler Group LLC have all gained share in the first five months this year, the first time that has happened in at least 18 years, as they sell some of their best cars in a generation. The Spark ranked No. 2 for quality in its segment in J.D. Power & Associates’ Initial Quality Study, an important industry benchmark.

Unlike past attempts with the larger Chevy Aveo, the Spark is being sold with good audio systems and other features not typical for low-entry-level cars, said Larry Dominique, executive vice president of Santa Monica, California-based auto researcher TrueCar Inc.

“When you start making it not just a cheap box and start adding some pizazz and features to it that people want, the appeal grows,” he said. “And I think GM has done a good job with that.”

GM could add those elements because Spark is largely sold outside of the U.S., giving it the scale required to make a vehicle that wouldn’t do enough business otherwise.

The company (GM:US) sold 275,228 Sparks last year around the world. While the car first went on sale in the U.S. in June of last year, it arrived in South Korean showrooms in 2009. GM has sold more than 720,000 globally, according to the company.

Korean Influence

The Spark’s design was led by designers in South Korea, where small cars are more popular, which underscores the progress GM has made in developing cars using its global resources. It’s the same team that led development of the Chevrolet Cruze and Sonic, compact cars that are still larger than the mini Spark and that have seen sales success around the world.

Alan Baum, an industry analyst with Baum & Associates, had expected an annual sales rate of 25,000 in the U.S., while 35,000 now looks more likely, he said.

“The price is obviously aggressive and resulting in good sales,” Baum said last week in an e-mail. “In addition, the car is doing well because its competitors (which are few) have been less focused on the U.S. market.”

U.S. sales of the Spark through May this year totaled 14,484, a little more than 3,000 behind Chrysler’s Fiat 500 at 17,562 and about half as many as the larger Ford Fiesta’s 28,801. Toyota (7203) Motor Corp.’s Scion iQ sold 1,919 during the same period.

Spark Sales

At $14,563, the Spark had the lowest average transaction price in the segment last month, according to Edmunds. The average segment transaction price was $19,038, while the Fiat 500 had a so-called ATP of $19,739. The Ford Fiesta averaged $17,094.

While not a best-seller for a company that delivered 418,312 Chevrolet Silverado pickups in the U.S. last year, the Spark is bringing in a new kind of customer. It has the highest percentage of buyers younger than 35 among Chevy models and attracts the largest percentage of first-time new car buyers, according to the company’s internal figures.

All of that is important for rebuilding Chevrolet, Cristi Landy, marketing manager for the car, said in an interview.

“It helps people look at Chevy differently,” she said. “It forces people to say, ‘Oh geez, this is a Chevy.’”

GM fell 2.5 percent to $31.42 at the close in New York. The shares have gained 9 percent this year, trailing the 10 percent increase for the Standard & Poor’s 500 Index.

Young Buyers

GM is eager to hook young consumers and keep them as they buy more expensive vehicles as they get older. A major initiative of Chief Executive Officer Dan Akerson is improving customer retention among GM’s brands as part the company’s efforts to boost North American operating margins to 10 percent by mid-decade from an average of 7.4 percent during the past three years.

GM estimates that every percentage point of customer retention improvement will generate $700 million in additional revenue.

The Spark’s gains weren’t always expected. Coming out of bankruptcy in 2009, the Spark was one of the many bets GM made that seemed unlikely to pay off given the automaker’s track record. Even some executives were skeptical, Ed Welburn, head of GM design, said in an interview this month at the company’s Warren, Michigan, technical center.

“This may be one step too far in doing small cars” in the U.S., he remembered them saying. “It was almost like this was a test.”

Hand-Washed

Welburn said he felt so strongly about the car that he has given it an “almost out of proportion” amount of time. The first one to arrive from South Korea for engineers to work on before it went on sale in the U.S. showed up on a weekend in July 2009. He remembered the engineer calling his home, asking if he’d like to see the car before it was driven to then-CEO Fritz Henderson’s home.

Yes, Welburn said. It arrived still dirty from the trip. “He pulled around to my garage and I got a bucket of water and a rag and I washed it by hand,” Welburn said.

That gave him a chance to run his hands along the sculpted hood with flared fenders, over a roof that’s taller than a Malibu mid-size sedan and over the big, round headlamps more suited to a large sport-utility vehicle.

“It makes me smile,” he said of the car’s design, which he described as fun and playful. In the middle of the interview, he pulled out his BlackBerry (BBRY:US) to show a picture of himself from that day, beaming with a smile during a break from washing the burnt orange car. “It was reassuring to me,” he said.

Staying Visible

As GM made final preparations for the car’s U.S. introduction, Landy, the marketing manager, worried the tiny car would get lost on dealer lots, hidden behind pickups and SUVs.

“If these guys order a bunch of white and silver ones and they park them in the back of the lot, I’m never going to even see them,” Landy remembered worrying.

She and her team devised a plan to constrain the number of Sparks available to dealers in traditional colors, such as black and white, as part of an effort to flood showrooms with bright-colored ones with names such Jalapeno, Denim, Lemonade and Techno Pink.

Techno Pink nearly didn’t make it on the list, Landy said. The hue, kind of a Hello Kitty-inspired shade of pink infused with silver, is the No. 1 selling Spark color in South Korea. Some at GM didn’t think it would fly in the U.S.

“I thought why not?” Landy said. “We wanted it to be fun. It wasn’t like we were making 500,000 of these. In my opinion, it was a small risk.”

Couldn’t Wait

The U.S. team did make one change. In South Korea, the color was called Luscious Kiss Pink. They renamed it Techno Pink. To shake things up for the new model year, Chevy won’t offer Techno Pink. It’s being replaced with Grape Ice, a cool purple shade.

In any event, the Spark’s pink paint job appealed to Potts, the car buyer in Massachusetts. The dealership didn’t have one in stock, though, and Potts said she didn’t want to wait for it come in. She picked a Denim blue one that was on the lot.

“It’s fun to drive,” she said. “It zips in and out of everywhere. It’s small, but doesn’t seem as small as it looks from the outside. There’s room in the back seat.”

Her family liked the car so much that her father-in-law, Peter Mitchell, 63, bought one, too. His is Jalapeno green.

“This is an eye-catcher,” he said. “We love it.”

To contact the reporter on this story: Tim Higgins in Soutfhfield, Michigan at thiggins21@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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