Big trucks, big profits, big future

Jan. 1, 2020
The SUV market will fall, but if GM

The business section headline reads, “Automakers follow Toyota into hybrids as gas prices rise. ”

Take a moment and let that sink in. First, here we go again with our American automakers following Toyota. That, in itself, is bad news; however, even worse news is an examination of what it took for the other manufacturers’ epiphany, namely, rising gasoline prices and the decision by President Bush to tap our strategic oil reserve.

Most noticeable among the reactive converts is GM Vice Chairman Bob Lutz. He said it was time to “rethink” hybrids after watching the success of the Toyota Prius. Daimler-Chrysler and BMW have joined GM in a partnership to develop hybrid engines, while Volkswagen and Audi are doing the same.

Oh, wait a second...I just turned the page of my newspaper and noticed another headline. It reads, “Still full speed ahead for GM and its gas-guzzling SUVs.”

Your first instinct may be to write GM’s SUV news off as contradictory and highly questionable. Is GM too aloof and obstinate not to know when it should cut bait and make some major strategy shifts? That’s an important question, but it seems irrelevant when it comes to market practicality. The one that needs to be answered is this: Is selling SUVs a strategy that can win back lost market share that Toyota and others have grabbed for the last 20 years?

The answer is “yes,” which may surprise many of you knowing that I’m not a proponent of SUVs. In my book, they’re an unnecessary means of transportation. My answer is based only on GM’s prowess in the market segment.

As the runaway leader of SUVs, producing and selling more than all other automakers combined, GM really has no other choice than to stay the course and milk their market position for all it’s worth at this point. GM has banked some hefty profits by controlling about 60 percent of the SUV market. In fact, GM’s $25 billion bank account is largely due to SUV and pickup sales. 

Facing a serious fuel crisis, GM’s chief economist Paul Ballew explains, “The backdrop is not ideal, but we have to accentuate the positive.” The big trucks, he says, “are important to our profits, our volume and our image.”

GM has been especially successful with sales of its luxury SUVs, which is likely to continue, no matter the cost of gasoline. These vehicles are status symbols and have to be had by status seekers. Although a minivan makes a lot more sense for the type of driving Americans do –– on the highway vs. off road –– many Americans won’t consider something so passe, so ’90s.

A personal story helps illustrate the point. A few weeks ago, my wife and I babysat our friends’ two little kids so that they could go out and do whatever they wanted to. “Go out and do something fun or go home and relax,” I said.

Me and my big mouth...they were gone all day. Anyway, when eternity ended and they came back to pick up their kids, we asked what they wound up doing. My friend stammered and stuttered, and eventually blurted out what was an apology of sorts. “Well, uh, we ran a few errands and then stopped off to take a test drive...at the Hummer dealership.”

Since this was at the height of the gasoline crisis, I must have had the same look on my face as when attending a wedding reception in which the bride’s drunken sister took the microphone to say a few choice words...“Although Mike wasn’t the first man Mary slept with...” Well, maybe a Hummer test drive didn’t surprise me as much as that indiscretion, but it did cause me to utter an awkward, “Huh?”

But I digress. There’s no doubt that the SUV market will slide. One analyst at Global Insight, an economic forecast firm, predicts that the market for full-size SUVs will decline next year by 11 percent.

This prediction, as well as others, doesn’t concern Lutz because he thinks that the losses will be absorbed by other automakers, not GM. He bases this on GM’s new SUV offerings, which he is predicting will be well received by motorists.

For those not too worried about the cost of gasoline, they probably will be awed by more refined interiors that are quieter, roomier and more comfortable. For those who at least pay lip service to the high cost of gasoline, they’ll be enthralled with some nifty technology which allows increased horsepower while at the same time provides better fuel economy.

There’s more good news: It’s unlikely that pickup sales will diminish. Although it’s hard to make a case for the need of an SUV, a pickup is often a necessity for those who pull trailers and boats or have to carry heavy loads.

GM’s interest in hybrids has been overshadowed by its efforts to develop viable hydrogen fuel cell vehicles, which, if perfected, would be the best solution. The trouble is that everyday use of these vehicles is too far off due to a number of problems, including a fuel production process that requires fossil fuels.

Presently, total hybrid sales account for 1 percent of the market. With stickers averaging $4,000 to $9,000 more than their gasoline engine counterparts, they are a tough sell because it’s hard to recoup the initial investment in gas savings alone.

In 10 years, total hybrid sales could be as high as 35 percent. Whether it’s 1 percent or 35, that still leaves a lot of room for SUVs and pickups, which should include a number of hybrid models.

The big truck market’s future? “Like a rock,” as they say.