Unprofitable Cars to get Axed "Soon"
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Joined: Nov 2000
Posts: 2,712
From: Ontario
While this sorta makes sense on the surface, I don't think it's a sound decision.
First, we need to know whether he's talking about outright profit, or the ability for a vehicle to cover its variable costs. If a car is covering its variable costs, there's a very good argument for keeping the production lines going as it's still contributing money to overhead and other fixed costs.
But even cars that don't quite cover their variable costs, if the loss isn't too great, can have a very good reason for existing. First, they may share components with other vehicle lines so that the volume purchasing brings down the costs for everyone. Let's take an extreme (and untrue) example and say trucks were not profitable but the Camaro was. Under this plan GM would axe the trucks. Now that you take close to a million V8s and RWD transmissions out of production, would the Camaro still be profitable? Not likely.
Second, every bit of volume helps spread out costs for marketing, dealerships, etc. I highly doubt the Cobalt makes a net profit, but take that away and Chevy dealers lose about a quarter of their car volume. Keep doing that and dealers won't have enough volume to exist in order to sell the "profitable" cars.
Third, small cheap cars are a way to get first-time buyers into your brand, and if you do a good job, keep them as their earning power increases and they can afford your more expensive (and profitable) models. If Chevy has nothing smaller than a Malibu, many young folks won't want a car that large or expensive so off they go to the Honda store. What are the chances Chevy gets them to come back when they have a family and start making more money?
Fourth, small cars (which again are the ones most likely to not be profitable) are required for CAFE. Without their offsetting mileage, it's going to be a lot tougher to meet the 35 mpg standard so that GM can sell more of their profitable larger vehicles. (I know it was posted above that the Aveo's mileage is worse than some larger cars, but that's mainly because it's at least a generation behind.)
First, we need to know whether he's talking about outright profit, or the ability for a vehicle to cover its variable costs. If a car is covering its variable costs, there's a very good argument for keeping the production lines going as it's still contributing money to overhead and other fixed costs.
But even cars that don't quite cover their variable costs, if the loss isn't too great, can have a very good reason for existing. First, they may share components with other vehicle lines so that the volume purchasing brings down the costs for everyone. Let's take an extreme (and untrue) example and say trucks were not profitable but the Camaro was. Under this plan GM would axe the trucks. Now that you take close to a million V8s and RWD transmissions out of production, would the Camaro still be profitable? Not likely.
Second, every bit of volume helps spread out costs for marketing, dealerships, etc. I highly doubt the Cobalt makes a net profit, but take that away and Chevy dealers lose about a quarter of their car volume. Keep doing that and dealers won't have enough volume to exist in order to sell the "profitable" cars.
Third, small cheap cars are a way to get first-time buyers into your brand, and if you do a good job, keep them as their earning power increases and they can afford your more expensive (and profitable) models. If Chevy has nothing smaller than a Malibu, many young folks won't want a car that large or expensive so off they go to the Honda store. What are the chances Chevy gets them to come back when they have a family and start making more money?
Fourth, small cars (which again are the ones most likely to not be profitable) are required for CAFE. Without their offsetting mileage, it's going to be a lot tougher to meet the 35 mpg standard so that GM can sell more of their profitable larger vehicles. (I know it was posted above that the Aveo's mileage is worse than some larger cars, but that's mainly because it's at least a generation behind.)
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Joined: Mar 2001
Posts: 13,713
From: The Golden State
Even a loss leader has to serve a strong purpose.
92RS shearn just pointed out the Prius an an example. But in the Prius' case, Toyota got green points that completely obscured the fact that their mainline cars and trucks got worse fuel economy than those from domestic manufacturers.
Bob Lutz did the something similar with Solstice.
The Solstice was made for virturally no money. The whole program cost significantly less than a good ad campaign. Yet, it was sold to upper management as a way to enhance Pontiac's "excitement", and to offer a car that had the ability to be in front of the camera at races such as SCCA events.
But one can't really fathom the purpose of the entire Saturn division, or why GM is spending as much to market an entire Buick line that can't even outsell the Pontiac G6 on a good day. The Lacrosse cost about as much to create as a Malibu, yet would barely register on the chart at the volumes Chevrolet sells at.
Corvette pays it's own way, so it's safe.
The new Camaro, like the Solstice, cost extremely little to create (thanks to Holden & Zeta), and easily pays it's own way as well.
If any car company sells something at a loss, it puts pressure on other vehicles to perform better than they should be expected to.
Not picking solely on GM, but all US manufacturers got wrapped up in this "Loss Leader" mentality... that's why they became overly dependent on large trucks and SUVs. They could move cars without being competitive by throwing money on the hood and make up the difference through large, expensive trucks, SUVs, and a couple of key pricey cars.
They got too wrapped up in it.
Ford got off the bandwagon 1st by focusing on quality in cars, and moved down to crossovers ahead of others. Chrysler with all profits coming from minivans, Rams, or 300Cs got hit the hardest when the house of cards fell in. GM with their incentives-cures-everything move is facing a gut wrenching bankruptcy. Ford, while doing far better than the other 2 US makers right now, barely got away with their lives and in the nick of time (imagine if Bill Ford hadn't convinced Mulally to leave Boeing!).
All vehicles must make a profit, or enhance the ability of the company at large to make profits.... or at minimum... pay it's own way and not adversely affect the bottom line.
This announcement by Mr Henderson shouldn't even be news.
That it is, is nothing short of shocking.
92RS shearn just pointed out the Prius an an example. But in the Prius' case, Toyota got green points that completely obscured the fact that their mainline cars and trucks got worse fuel economy than those from domestic manufacturers.
Bob Lutz did the something similar with Solstice.
The Solstice was made for virturally no money. The whole program cost significantly less than a good ad campaign. Yet, it was sold to upper management as a way to enhance Pontiac's "excitement", and to offer a car that had the ability to be in front of the camera at races such as SCCA events.
But one can't really fathom the purpose of the entire Saturn division, or why GM is spending as much to market an entire Buick line that can't even outsell the Pontiac G6 on a good day. The Lacrosse cost about as much to create as a Malibu, yet would barely register on the chart at the volumes Chevrolet sells at.
Corvette pays it's own way, so it's safe.
The new Camaro, like the Solstice, cost extremely little to create (thanks to Holden & Zeta), and easily pays it's own way as well.
If any car company sells something at a loss, it puts pressure on other vehicles to perform better than they should be expected to.
Not picking solely on GM, but all US manufacturers got wrapped up in this "Loss Leader" mentality... that's why they became overly dependent on large trucks and SUVs. They could move cars without being competitive by throwing money on the hood and make up the difference through large, expensive trucks, SUVs, and a couple of key pricey cars.
They got too wrapped up in it.
Ford got off the bandwagon 1st by focusing on quality in cars, and moved down to crossovers ahead of others. Chrysler with all profits coming from minivans, Rams, or 300Cs got hit the hardest when the house of cards fell in. GM with their incentives-cures-everything move is facing a gut wrenching bankruptcy. Ford, while doing far better than the other 2 US makers right now, barely got away with their lives and in the nick of time (imagine if Bill Ford hadn't convinced Mulally to leave Boeing!).
All vehicles must make a profit, or enhance the ability of the company at large to make profits.... or at minimum... pay it's own way and not adversely affect the bottom line.
This announcement by Mr Henderson shouldn't even be news.
That it is, is nothing short of shocking.
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Joined: Sep 2004
Posts: 1,448
From: Irving, TX
But one can't really fathom the purpose of the entire Saturn division, or why GM is spending as much to market an entire Buick line that can't even outsell the Pontiac G6 on a good day. The Lacrosse cost about as much to create as a Malibu, yet would barely register on the chart at the volumes Chevrolet sells at.
Caddy doesn't sell anywhere close to Pontiac's volume, but they still make money. Margins are key.
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Joined: Dec 2000
Posts: 1,214
From: City of Champions, MA, USA
If you take Buicks sales and add them to Buick of China does that make more money than Pontiac? The only logic I can see is that Buick makes more money globally than Pontiac makes in the US.
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Joined: Mar 2005
Posts: 3,123
From: Melbourne, Australia
While this sorta makes sense on the surface, I don't think it's a sound decision.
First, we need to know whether he's talking about outright profit, or the ability for a vehicle to cover its variable costs. If a car is covering its variable costs, there's a very good argument for keeping the production lines going as it's still contributing money to overhead and other fixed costs.
But even cars that don't quite cover their variable costs, if the loss isn't too great, can have a very good reason for existing. First, they may share components with other vehicle lines so that the volume purchasing brings down the costs for everyone. Let's take an extreme (and untrue) example and say trucks were not profitable but the Camaro was. Under this plan GM would axe the trucks. Now that you take close to a million V8s and RWD transmissions out of production, would the Camaro still be profitable? Not likely.
Second, every bit of volume helps spread out costs for marketing, dealerships, etc. I highly doubt the Cobalt makes a net profit, but take that away and Chevy dealers lose about a quarter of their car volume. Keep doing that and dealers won't have enough volume to exist in order to sell the "profitable" cars.
Third, small cheap cars are a way to get first-time buyers into your brand, and if you do a good job, keep them as their earning power increases and they can afford your more expensive (and profitable) models. If Chevy has nothing smaller than a Malibu, many young folks won't want a car that large or expensive so off they go to the Honda store. What are the chances Chevy gets them to come back when they have a family and start making more money?
Fourth, small cars (which again are the ones most likely to not be profitable) are required for CAFE. Without their offsetting mileage, it's going to be a lot tougher to meet the 35 mpg standard so that GM can sell more of their profitable larger vehicles. (I know it was posted above that the Aveo's mileage is worse than some larger cars, but that's mainly because it's at least a generation behind.)
First, we need to know whether he's talking about outright profit, or the ability for a vehicle to cover its variable costs. If a car is covering its variable costs, there's a very good argument for keeping the production lines going as it's still contributing money to overhead and other fixed costs.
But even cars that don't quite cover their variable costs, if the loss isn't too great, can have a very good reason for existing. First, they may share components with other vehicle lines so that the volume purchasing brings down the costs for everyone. Let's take an extreme (and untrue) example and say trucks were not profitable but the Camaro was. Under this plan GM would axe the trucks. Now that you take close to a million V8s and RWD transmissions out of production, would the Camaro still be profitable? Not likely.
Second, every bit of volume helps spread out costs for marketing, dealerships, etc. I highly doubt the Cobalt makes a net profit, but take that away and Chevy dealers lose about a quarter of their car volume. Keep doing that and dealers won't have enough volume to exist in order to sell the "profitable" cars.
Third, small cheap cars are a way to get first-time buyers into your brand, and if you do a good job, keep them as their earning power increases and they can afford your more expensive (and profitable) models. If Chevy has nothing smaller than a Malibu, many young folks won't want a car that large or expensive so off they go to the Honda store. What are the chances Chevy gets them to come back when they have a family and start making more money?
Fourth, small cars (which again are the ones most likely to not be profitable) are required for CAFE. Without their offsetting mileage, it's going to be a lot tougher to meet the 35 mpg standard so that GM can sell more of their profitable larger vehicles. (I know it was posted above that the Aveo's mileage is worse than some larger cars, but that's mainly because it's at least a generation behind.)
That's why I believe it would be good if Chevrolet had all these cars instead of giving the other brands some of the more desirable cars at a dealership which only serves to alienate potential buyers.
For instance, the G8 would be selling in greater numbers if the car was complemented by lower level cars like the Astra (for example). But would that buyer walk into a dealership full of Buicks? It would most certainly put some potential buyers off ... to the point where they would walk away from the GM product, right into the Honda dealership where the range/choice is more straightforward.
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Joined: Dec 2005
Posts: 2,802
From: Annapolis MD
Let me get this straight. You would keep producing non profitable trucks to keep producing profitable Camaro or <imaginary vehicle here>?
Thats crazy. I hope this is an April fools joke...
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Joined: Jan 2000
Posts: 10,285
From: Albany, NY
Do China and the USA even share any Buick models? Regal might be the first, but that car could have easily been a Saturn or Pontiac.
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Joined: Dec 2005
Posts: 2,802
From: Annapolis MD
I dont know the history about Buick China, but I dont understand why its buick in China at all. Why couldnt there be a Holden Enclave and just be Holden China?
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Joined: Dec 2000
Posts: 1,214
From: City of Champions, MA, USA
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From: Oakland, California
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From: Albany, NY
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Joined: Jan 2009
Posts: 200
That being said, I've seen nearly production-ready versions of the new Lacross and it's one of the nicest GM cars (not just Buicks) that I've seen. I have high hopes for it, and not just from geriatric customers.
I remember some stir being created when the Lucerne came out, and how a few people thought it would be a nice daily driver, even though they weren't 'old enough' to drive it. The Lacross continues on in these same footsteps, but it takes it 3 steps further than the Lucerne.