GM’s turnaround rides on a successful Chevy

By David Kiley

updated 2:01 p.m. ET July 10, 2009

As General Motors emerges from bankruptcy reorganization to launch a new era, it is no exaggeration to say that as goes Chevrolet, so goes General Motors.

The Chevrolet brand has always been central to GM's fortunes. It's the division with the largest sales volume, after all. But at times, Chevy has suffered, along with GM's other brands, from neglect, mismanagement, and the automotive equivalent of malnutrition — a shortage of competitive models, and models sitting without updates in showrooms well past their sell-by date.

To see the results, just look at some market-share numbers. Through the first half of this year, Chevrolet had a 12.3 percent slice of the U.S. auto market, according to Autodata. GM as a whole had a 19.7 percent share. GM has agreements in place to sell Saab, Hummer, and Saturn, and it is closing Pontiac. The brands that will remain with the new GM, besides Chevy, are Buick, GMC, and Cadillac. Together, those three accounted for just 4.4 percent market share.

Suffering from brand dilution
Today, Chevrolet markets six passenger cars, eight sport-utility vehicles and vans, and three pickup trucks. That's 17 distinct product lines, adding up to a little more than 12 percent market share. Toyota, not including Scion and Lexus, has 17 models, and 14.1 percent share. That doesn't speak well of Chevy's efficiency. And yet, so low are the expectations for GM that many people might think the gap between Chevy and Toyota was even larger.

"If GM had not diluted and shortchanged Chevy over the years to prop up brands like Saturn, Saab, and Hummer, it would be a more powerful brand right now," says Earl Hesterberg, CEO of Group 1 Automotive and former top marketing executive at Ford Motor, Chevy's nemesis. Group 1, a large automotive retailer, has five Chevy dealerships.

Indeed, through the years, billions went into marketing and designing cars and trucks for those ultimately unsuccessful GM brands. Budgets were stretched so tight that GM continued to sell essentially the same vehicles across its hungry brands to fill out their showrooms, with little money to substantially differentiate, say, a Saturn Outlook SUV from a GMC Acadia SUV. And in the case of those SUVs, Chevy didn't even get its version until more than a year after Saturn. The whole system left Chevy dealers scrambling to compete for customers against GM's own Saturn and GMC, instead of focusing on beating Ford and Toyota.

Japanese stumble with trucks
For all its problems, though, Chevy emerges from bankruptcy with strengths that Asian carmakers can't match. "The reaction to the new Camaro has been very strong, and its pickup truck and large SUV remain at the top of those categories," says Hesterberg.

Indeed, Toyota, Honda, and Nissan have all stumbled in trying to sell full-size pickup trucks. Toyota sold just over 9,000 Sequoia SUVs in the first half of the year, whereas Chevy sold almost 50,000 Suburbans and Tahoes. Toyota has sold just 36,000 Tundra pickups in the first half, compared with Chevy's 150,000 Silverados. And neither Honda nor Toyota have competed much in the muscle-car category, where the nifty new Camaro plays.

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What worries GM, though, is not so much the pickup and SUV business, where it will continue to battle Ford and to a lesser degree, Dodge. "Chevy's, and GM's, worry is how the company will perform in the passenger car and small SUV business, where Toyota has dominated Ford and Chevy," says Dan Gorrell of industry consultancy AutoStrategem. "That is where the U.S. market is going — more cars and small crossover SUVs."

Greater focus on Chevy
Consider that in the first half of the year, Chevy sold only 76,000 Malibu sedans — its best reviewed and most acclaimed family car, designed to specifically take on Toyota's Camry — compared with 150,000 Camry/Solara models. And for years, Chevy has been barely competitive in the compact crossover segment with its Equinox SUV, which sold 25,000 in the past six months, compared with 62,000 Toyota RAV4 SUVs and 79,000 Honda CR-Vs. The all-new Equinox, launched earlier this year, is substantially better than the old model, but it is an example of how Chevy has put up weak entries in important product segments. And it will take time for consumers to even notice some of its latest designs.

To change marketplace perceptions, Chevy may need to overhaul its marketing and advertising. GM's sales and marketing chief, Mark LaNeve, insists a remake is not in order, and that Chevy will benefit from GM's more focused attention. By spreading its dwindling resources the past few years across too many weak brands and dealers, GM shorted Chevy on necessary expenditures to design and sell new cars against Toyota and Ford.

Until the 2007 Malibu launch, for example, Chevy took on Toyota's Camry with only a smallish, generic sedan — the previous Malibu — that was a bigger hit at car-rental lots than dealer showrooms. When the new Malibu arrived, its annual marketing budget trailed Camry's by more than $100 million. Coming out of bankruptcy, LaNeve says, it will take Chevy at least three years to catch up to Toyota's marketing outlays.

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