Bloomberg News

GM’s Hershey-Rivaling Big SUVs Get Better Interiors, Mileage (1)

September 12, 2013

To understand why John Keefe of Red Bank, New Jersey, who owns a Chevrolet Tahoe sport-utility vehicle, is so important to General Motors Co. (GM:US), consider this:

While the four large Chevrolet and GMC SUVs made up less than 6.5 percent of GM’s U.S. vehicle deliveries last year, their combined sales are the equivalent of a Fortune 400 company, with more revenue than MasterCard Inc. (MA:US), Ralph Lauren Corp. (RL:US), Hershey Co. or Campbell Soup Co. (CPB:US)

The vehicles have average transaction prices greater than the averages of BMW, Audi and Lexus. The average household income of a Suburban buyer is $135,000 while it’s $182,000 for the largest Yukon XL Denali, according to GM. So as it prepared to redesign its large SUVs -- a segment that has lost much of its luster over the past decade -- it had to make sure to keep Keefe in mind as he considers whether to buy another Tahoe.

Keefe is holding off on buying a new one to see what’s different, he said, noting that his only complaints about his current SUV are the lack of a flat-folding third row and the fuel efficiency. “I see the Corvette’s getting 30-some miles-to-the gallon,” he said of the redesigned Chevy sports car now getting 29 mpg in highway driving. “I think they’ve got to be able to tweak this a little bit.”

The automaker (GM:US), based in Detroit, today revealed the redesigned 2015 versions of the Tahoe and Suburban during a presentation in New York and a new GMC Yukon in Los Angeles. The SUVs, which are slated to arrive in U.S. showrooms during the first quarter, have more leg room, fold-flat second- and third-row seats and greater luxuries.

GM rose less than 0.1 percent to $36.37 at the close in New York. The shares have surged 26 percent this year, outpacing the 18 percent gain for the Standard & Poor’s 500 Index.

Still Important

“They’re quite profitable,” Chief Financial Officer Dan Ammann told reporters today in New York, referring to the big SUVs. “What we’re obviously doing is meeting a customer demand. This is a quarter-of-a-million unit market here in the U.S., this is what customers are looking for.”

While the large SUV’s heyday is over, it’s still an important segment for Detroit automakers, especially GM. The big SUV has become a niche vehicle for certain lifestyles, said Jeremy Acevedo, an analyst with Santa Monica, California-based Edmunds.com.

“GM’s done a great job maintaining market share in the segment; the problem is that it just seems like these days it’s going to be a limited segment no matter what they do,” Acevedo said. “What they can do is vie for even more market share within the segment but I don’t know about it growing on its own.”

‘Absolutely Concerned’

GM has never had a stronger -- and more profitable -- lineup across the board than now, with solid offerings even among small cars such as the Chevy Spark. Still, the large-SUV segment is particularly profitable. The average transaction price for Chevy and GMC large SUVs is $52,587, according to Edmunds, which tracks vehicle sales.

“These customers are absolutely concerned about fuel economy, the changing market, watching their income during the recession,” Maria Rohrer, marketing director of Chevy’s large SUVs, said in an interview. “But when it really comes down to it, and they have the means for it, they have to have the space and that outweighs a lot of things.”

The combined segment market share of Chevy and GMC large SUVs in the U.S. rose to 61 percent this year through July compared with 58 percent in 2004, according to Edmunds. Ford Motor Co. (F:US)’s large SUV market share fell to 11 percent this year compared with 18 percent during all of 2004.

‘Fairly Significant’

GM’s large SUVs are built on the same underbody as the Chevrolet Silverado and GMC Sierra pickups, benefiting from advances made in those vehicles’ powertrains this year. Both pickups were redesigned in 2013.

The new 2014 Silverado with a 5.3-liter V-8 engine and two-wheel drive gets 23 miles (37 kilometers) per gallon in highway driving, the automaker said earlier this year. That’s a 2-mile-per-gallon improvement compared with the 2013 V-8 5.3-liter engine, according to the U.S. Environmental Protection Agency’s website.

With the SUVs, GM is looking for “a fairly significant improvement,” Jeff Luke, executive chief engineer, told reporters before the New York event. He declined to predict the vehicles’ mileage ratings.

Loaded Up

The SUVs will be loaded up with a list of safety features typically found in luxury cars, including forward collision alert, lane departure warning, and front- and rear-collision mitigation braking. Other improvements include 2 inches (5.1 centimeters) more leg room in the second row, a quieter interior, an 8-inch color touchscreen, six power outlets and a rear-seat entertainment system.

“It handles a very specific need,” Rohrer said.

Even with the updates, it’s unlikely that the large SUV market will return to its glory days when gasoline was cheap. U.S. sales of Chevy and GMC large SUVs peaked in 2001 with 505,155 deliveries, according to GM.

Large SUVs comprised 4.7 percent of the new vehicle sales in 2001 in the U.S. at a time when the average gallon of regular gasoline cost $1.38, Edmunds said.

Things have changed as fuel costs increased. Large SUVs fell to 1.9 percent of the market last year, according to Edmunds. GM’s sales slid to 168,265 last year, a far cry from a decade earlier when Chevy and GMC sold about 67,000 large SUVs in August alone.

Eager GM

While unit sales of the large SUVs have plunged, GM has been able to charge more for them. The average transaction price for Chevy and GMC large SUVs rose 37 percent from 2002 when the average was $38,358, according to Edmunds. GM’s average transaction price this year through August exceeds the average for Audi, BMW and Lexus brands, Edmunds said. It’s $3,583 more than the average transaction price for the industry’s large SUVs and $21,264 more than the total industry.

That’s why GM is so eager to keep its big SUV business. Even with a smaller market, GM remains confident customers still need for space for several passengers, cargo and towing capacity, said Tony DiSalle, head of GMC marketing.

“Those needs are there,” he said. “These are relatively affluent people and their needs would indicate that something like this would continue to be very appealing.”

The Tahoe’s high-ground clearance and space for his three sons, who range in age from 7 to 14, plus all of their sports gear has made it the go-to vehicle for his family, said Keefe, 47, the Tahoe owner in New Jersey who’s a lawyer.

“I’m a fan of it, more so than I thought when I first got it,” Keefe said this week in a telephone interview. “We’ve taken it everywhere.”

To contact the reporter on this story: Tim Higgins in New York at thiggins21@bloomberg.net

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


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