Lifestyle

Can GM Keep GMC?


GMC, one of the General Motors brands in Treasury's crosshairs, may be too profitable to kill

Executives at General Motors Corp. (GM) are saying the GMC brand isn't going anywhere.

News reports this week said that the truck brand, which is sold alongside Buick and Pontiac at most dealerships, was under review by President Barack Obama's Auto Task Force. The task force questioned whether GM should cut the brand—along with Pontiac—and get down to selling just Chevrolet, Cadillac, and Buick. Already on the chopping block are Hummer, Saturn, and Saab.

The feds questioned GM's strategy of keeping the four core brands—Cadillac, Chevy, Buick, and GMC—while preserving Pontiac as a niche seller of sports cars. Getting the most scrutiny were GMC and Pontiac. GM executives who are directly knowledgeable about the review said the task force spent last week and part of this week looking at GM's plan to keep those brands. The task force review was led by Treasury adviser Harry Wilson and conducted with analysts from a firm the government has hired, Boston Consulting Group.

It appears for the moment that GMC will survive. Sources say GM discussed its brand strategy with the task force and that the group's members agreed GMC merits survival. "They agreed with us," says one top GM executive. "We have gone deep on it. We spent a lot of time on it last week. We're done with that discussion. We couldn't be done with that discussion if Harry Wilson Wasn't on board" with keeping GMC. A Treasury Dept. spokesperson declined comment.

Falling sales, me-too vehicles

GM insists it is proceeding with its strategy of keeping four core brands and Pontiac as a niche. During a call with journalists today, GM CEO Frederick A. "Fritz" Henderson said GMC is still in his plans. "Our four core brands remain the bulwark of our strategy," he said. "We're looking at the purpose and reason for being for all of our brands. We remain committed to our four core brands."

It's easy to see why the question is raised. The SUV boom has been on the wane and the pickup market has steadily declined over the past few years. And GMC does not sell anything that can't be found in other GM showrooms—namely, Chevrolet outlets. The Chevy Suburban and GMC Yukon XL, for example, are virtually identical, as are the Chevy Silverado and GMC Sierra pickups.

But analysts say it would be a mistake to get rid of GMC. James N. Hall, principal of auto consulting firm 2953 Analytics, says research shows that the second choice among buyers of GMC's Sierra full-sized pickup—which sold 170,000 copies last year—is not its stablemate, the Chevy Silverado, but Ford's F-150 pickup. If GMC goes, so would many of those buyers, Hall says.

pricier options

"Why would you get rid of GMC?" Hall asked. "It's profitable."

Not only that, the brand commands better pricing on its pickups and SUVs than Chevy does, says Susan Docherty, general manager of Buick, Pontiac, and GMC. Docherty says GMC buyers tend to buy their vehicles with more luxury options. Across the lineup, GMC buyers pay $2,000 to $4,000 more than they would on a comparable Chevy.

Even though the vehicles are mechanically the same as a Chevy, GMC buyers have long seen them as different, says Dan Gorrell, president of auto consulting firm AutoStrategem. GMC's tagline, "Professional Grade," has been pretty successful. Plus the brand's 362,000 sales last year helped GM plants run closer to full tilt.

GM and the task force may find that transforming Pontiac from a mainstream brand to a niche sports car brand isn't worth the money. But GMC is a tougher one to kill off. "GMC has equity," Gorrell says. "It would be a shame to walk away from it."

Return to the Auto Bailout Special Report Table of Contents

Welch is BusinessWeek's Detroit bureau chief.

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