GM hoping big SUV category still has life

Martin Wolk Chief economics correspondent • Profile • E-mail

Sales of big sport utility vehicles have tumbled over the past several months in the wake of $3-a-gallon gasoline, but don’t try telling General Motors Corp. that the behemoths of the road are running on fumes.

Even as consumer tastes appear to be shifting away from big SUVs toward smaller, more fuel-friendly "crossover" models, the No. 1 automotive company is preparing a major overhaul of its some of its biggest — and most profitable — consumer vehicles, including the Chevrolet Suburban, GMC Yukon and Cadillac Escalade.

“The bottom line for us is the utility market remains the largest category in the industry,” said Paul Ballew, GM's executive director of global market and industry analysis. “We are anticipating we will maintain our share of a stable market that is still very profitable.”

Even though Detroit has been roundly criticized for its overdependence on big, truck-based vehicles, industry analysts and executives say it is far too soon to begin writing the obituary on the SUV category, which rocketed to prominence in the 1990s and now accounts for one of every four vehicles that roll off dealer lots.

They are even more important to the industry in terms of profitability.

A typical big domestic-made SUV generated $6,300 in profits for the Big Three automakers in 2004, compared with $3,800 for a full-size car. A large luxury SUV like an Escalade added an average of $11,300 to the bottom line of its manufacturer, compared with $8,100 for a typical luxury car, according to data from the University of Michigan Transportation Research Institute.

And while hot-selling smaller crossover vehicles like the Nissan Murano, Honda Pilot and Chevrolet Equinox — utility vehicles built on car platforms — might be good substitutes for medium-sized SUVs, analysts and industry executives say there is still plenty of demand for large vehicles that haul like a truck but offer at least some of the comforts of a car.

“The huge growth in large SUVs is essentially over,” said Jack Nerad, editorial director and executive market analyst for Kelley Blue Book, which tracks the industry. “At the same time there is going to be a very significant market for large SUVs like the Chevy Tahoe. There are just too many people who need what a large SUV does for them.”

While Ford and DaimlerChrysler also rely heavily on sales of SUVs, nobody has more riding on the large end of the category than General Motors. The No. 1 carmaker has seen its overall market share tumble over the past year, had its corporate bonds downgraded to junk status and announced plans to cut 30,000 jobs and close several plants.

GM historically has dominated the large end of the SUV market with its Suburban, Tahoe and Yukon models, but sales of all three have tumbled this year, including a 26 percent drop for the Suburban. GM executives acknowledge that concern over fuel prices has played a role but say the main reason is the models have gotten stale and consumers are anticipating a major redesign.

So GM hopes to make a big splash early this year — think Super Bowl advertising — with the launch of the 2007 Tahoe and Yukon, the first of a half-dozen SUV models based on the new GMT-900 pickup truck platform. The new platform includes a redesigned chassis that GM promises will offer a smoother ride, among other improvements.

“We are breaking all new ground, certainly with regard to fuel economy and safety,” said GM’s Ballew.

GM has begun taking the wraps off its new models for automotive writers, and the early reviews have been positive, said Jesse Toprak, executive director of industry analysis for Edmunds.com, an automotive Web site.

“I have not heard anything negative for these vehicles,” said Toprak. “From what we can tell, so far, so good.”

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