GM May Have to Drop GMC Brand
04.16.2009
Bloomberg reported today that GM’s GMC brand, which sells trucks and crossovers, may be on the chopping block, along with the previously-confirmed-to-be-on-death-row Hummer, Saturn, and Saab. GM’s most recent restructuring plan called for a focus on Chevrolet, Cadillac, and Buick as “core brands,” with GMC and Pontiac to be retained, but Pontiac becoming a “niche brand” with only a couple of models.
GMC is GM’s second bestselling brand, behind Chevrolet (albeit a distant second, with just 20% of Chevrolet’s sales). In 2008, GM’s divisional sales played out like this:
Buick: 137,197
Cadillac: 161,159
Chevrolet: 1,790,519
Chevrolet trucks: 979,286
Chevrolet cars: 811,233
GMC trucks: 361,739
Hummer: 27,485
Pontiac: 246,659
Saab: 21,368
Saturn: 188,004
TOTAL: 2,914,819
It’s easy to see why it makes sense to kill Hummer and Saab (48,853 sales combined, while Chevrolet sold 54,058 Suburbans alone). Cutting their losses on Saturn also makes sense, because that’s the third-smallest sales volume in the lineup and has nearly all standalone dealers and a more flexible franchise agreement that makes it easier to terminate the brand. On top of that, Saturn has zero completely unique products. Every product that Saturn sells is available elsewhere at another GM brand:
Saturn Astra = Chevrolet Cobalt, Pontiac G5
Saturn Aura = Chevrolet Malibu, Pontiac G6
Saturn Outlook = Buick Enclave, Chevrolet Traverse, GMC Acadia
Saturn Sky = Pontiac Solstice
Saturn Vue = Chevrolet Equinox, GMC Terrain
GMC’s lineup, of course, has similar overlap issues – but it’s no guarantee that buyers who prefer the GMC Sierra variant of the Silverado will automatically buy a Silverado. Very few Oldsmobile buyers moved to Buick or Pontiac when Oldsmobile was closed in 2004; instead, they bought Toyotas (among other brands).
The obvious implication of this news is that, bankruptcy or not, GM will be significantly smaller next year than it was in 2008 or 2009. Taking away the sales of GMC, Pontiac, Saturn, Saab, and Hummer hacks off 865,944 units from GM’s 2008 sales in one fell swoop. Assuming that Chevrolet, Cadillac, and Buick sales volumes remain flat (they won’t), that leaves 2,088,875 units. But since Chevrolet, Cadillac, and Buick sales are down 48.4% year to date, chop another 50% (roughly) off of the 2,088,875 number, and you’re close to a million units.
Pontiac has little reason to continue its existence, either. Only the G8 and the Toyota-engineered Vibe not available elsewhere in the GM family, although Saturn’s impending demise leaves the Solstice as a slow-selling orphan that wouldn’t have made its second generation anyway.
In terms of plants, GM was already over capacity before the auto industry armageddon hit. With the newly-slimmed company down to roughly a third of its 2008 sales volume potentially as early as 2010 (depending on the timing of a GMC/Pontiac closure/sale and the disposition of Hummer/Saab/Saturn), it’s not hard to see that thousands more people will lose their jobs. If GM can shrink its capacity fast enough (frankly, with so many plants that are already under capacity losing many of the models that they build, I don’t see how it’s possible), GM would have eliminated nearly all of its overlapping models immediately. However, it also would lose most of the ability to amortize development over multiple models that further platform sharing would do. For example, if only Chevrolet and Cadillac are left standing, the Malibu is on its own platform, the Cobalt and HHR share a platform, the Cruze is on a new version of the Cobalt/HHR platform, the Camaro has its own platform, the Impala has its own platform, the Traverse has its own platform, etc.
Without GMC’s and Pontiac’s volume, I can’t see how GM will have enough cash flow to make its debt payments without either serious concessions from bondholders (which they are resisting right now) or Chapter 11 bankruptcy protection.
This should be an interesting 45 days.
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