Tahoe puts rush on GM's SUVs

March 15, 2006

BY MICHAEL ELLIS

FREE PRESS BUSINESS WRITER


Some declared the SUV market dead when gas prices topped $3 a gallon last year, and said General Motors Corp. was foolish to invest billions in a lineup of new large SUVs.

But sales of the new Chevrolet Tahoe are so strong that GM is now trying to speed up the launch of several other SUVs and ship them to dealerships two to four weeks ahead of schedule, Mary Sipes, GM's vehicle line director for large trucks, said Tuesday.

The Tahoe -- with better fuel economy and added features -- has been on sale only since early January, but sales are up 49.8% from January and February last year.

And the surprising surge comes without a cent of incentives on the new model, which is selling for more than the vehicle it replaced. GM is offering incentives of as much as $7,500 on the older Tahoe.

The strong early sales of the Tahoe and GM's confidence in its upcoming SUVs show that there is life left in the SUV market, even with sales of most other SUVs down in 2006. If Tahoe's success is any indication, the key seems to be bringing in new models. Ford Motor Co. and the Chrysler Group also plan new SUVs this year.

GM's highly profitable SUVs also give hope to the struggling automaker.

Dealers can't get enough of the new Tahoe, Sipes said.

"I've had people find that I have the only white one in the area, and they drive quite a few miles to get it," said Steve Cook, owner of Cook Chevrolet-Pontiac-Buick in Vassar, a town 20 miles east of Saginaw. "Everybody really likes the look."

Even Donald Trump has taken notice. In Monday's "The Apprentice" on NBC, the Tahoe took a starring role as aspiring Trump assistants were challenged to create a training event for Chevrolet dealers and marketing executives.

GM has moved ahead production of its large SUVs twice before. But because of the Tahoe's success, GM is asking its automotive suppliers to ship parts ahead of schedule, so it can begin building new versions of SUVs like the Chevrolet Suburban and GMC Yukon XL faster, Sipes said.

GM begins production next week of the new Chevrolet Suburban at a plant in Silao, Mexico, and is hoping to move up production of more large SUVs at plants in Janesville, Wis., and Arlington, Texas.

GM builds the Tahoe, GMC Yukon and GMC Yukon XL in Arlington and the Tahoe and the Yukon in Janesville. Both plants are capable of building the Suburban, Cadillac Escalade and Escalade ESV if demand grows.

All the models in the sprawling family offer both better fuel economy and more powerful engines. New features include power tailgates, power flip-and-fold middle-row seats, power retractable running boards and a more powerful version of GM's famous small-block V8 engine.

The new SUVs are crucial to GM's attempts to rebound from last year's $8.6 billion in losses. GM has nearly bet the company on the success or failure of the new large SUVs, and they could add billions of dollars in profits if they do well this year, said David Healy, an automotive analyst with Burnham Securities.

"I do think that GM's results are going to get a hell of a lot better as the new SUVs sell better, with better pricing, and a lot of their cost cuts coming in," said Healy, who estimated GM earns $10,000 or more in profit on every full-size SUV sold.

Also boding well: Consumers paid nearly $7,000 more for the new 2007 model year Tahoe in February than for the 2006 model, said Tom Libby, senior director of industry analysis at J.D. Power's Power Information Network.

Buyers of the new model paid an average of $41,233 for the new Tahoe in February versus $34,546 for the 2006 Tahoe, Libby said. "That's impressive," Libby said. "They need more of this."

SUV sales plunged late last summer when hurricanes drove gas prices above $3 a gallon briefly.

With gas prices now hovering between $2.30 and $2.50 a gallon, news reports of SUV rollovers in crashes and roomy crossover vehicles coming to market, GM admits that the U.S. market for large SUVs won't hit 1 million vehicles this year like it did a few years ago.

Sales most likely will ease to about 750,000 annually, but GM intends to hold its dominant market share at around 62%, Sipes said.

Other automakers are bringing out new SUVs. Ford will bring out the new models of the Expedition and Lincoln Navigator this fall. The Chrysler Aspen, a version of Chrysler's Dodge Durango, also comes out this year.

For consumers worried about high gas prices, GM is quick to point out that its new SUVs have better fuel economy than any competitors' models.

The new two-wheel-drive Tahoe gets 22 miles per gallon on the highway and 16 m.p.g. in the city. The four-wheel-drive gets 1 m.p.g. less in city and highway driving.

That's as good or better than the two- and four-wheel drive versions of the much small Kia Sorento midsize SUV.

"This is a bright spot for General Motors," Sipes said. "A lot of people are taking potshots at us, but this is absolutely one of the brightest things we have going."

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