General Motors has freed up cash to fund a major update of its full-size pickups, a bet that consumers and businesses will resume buying trucks after a long lull in sales.
Chairman and chief executive Edward E. Whitacre Jr. has agreed to fund the move, said GM product chief Tom Stephens. The remodeling could cost the company close to $1 billion, a person familiar with the matter said.
GM, which had relied on full-size pickups such as the Chevrolet Silverado for a major portion of its U.S. revenue and operating profit, had put off redesigning the trucks as its finances collapsed and it underwent a government-backed bankruptcy reorganization last year.
Now, unlike in the 1990s truck boom, the company plans to revitalize its pickup line at the same time it invests heavily in small, fuel-efficient cars as well as in the electric Chevrolet Volt due later this year. At this week's big Detroit auto show GM displayed its new Chevy Cruze, which it hopes will be its first strong contender in compact cars in decades.
Truck sales sagged in the past two years after gasoline spiked to $4 a gallon in 2008 and home sales -- a big driver of truck purchases by contractors and builders -- collapsed amid the recession.
Not the government's businessGM now is trying to boost revenue and return to profitability in a bid to repay the $6.7 billion in cash it owes the U.S. government. The Treasury Department also invested roughly $50 billion more in GM that was converted into a 60% stake in the automaker.
The government has pushed GM, Chrysler -- which also restructured in a federally financed bankruptcy -- and other automakers to produce smaller, more fuel-efficient vehicles, including battery-powered cars. But administration officials said this week that any decision by GM to move more heavily into trucks was the company's own business, and that neither the Treasury nor the White House was involved.
"The administration has said from the start that we won't be involved in day-to-day operations of GM or Chrysler, which includes decisions about the styles, colors or sizes of the automobiles sold. This falls outside the scope of our role," said one administration official.
The update would focus predominantly on pickups. GM already has reduced production of big sport-utility vehicles that are made from the same underpinnings as its trucks. These SUVs, such as the Chevy Suburban, have drawn criticism from environmentalists who say they consume too much fuel to be used for hauling families.
GM has started making lighter, more fuel-efficient models called crossovers, such as the Chevy Traverse, that aren't based on trucks but still offer room for six or seven people. Still, it will continue to make traditional SUVs, Stephens said.
GM's renewed truck push is unlikely to conflict with the government's desire to raise overall fuel economy because GM's new generation should get better gas mileage than today's pickups.
Under new federal fuel-economy mandates, GM's truck lineup must average 24.1 miles per gallon by 2011. GM's biggest trucks and SUVs won't reach those numbers, but the company's entire truck line, which includes many smaller, more fuel-efficient models, will meet the average, Stephens said.
Until the past few years, full-size pickups had been a big business for Detroit car companies. They often sell for $30,000 and more and generate thousands of dollars in operating profit each.
While political leaders push for fuel efficiency, the Obama administration also has displayed that it appreciates the profit-making power of trucks.
Goal: Guzzle less gas
Early last year, the president's automotive task force made GM justify why it should keep the GMC truck brand, whose models are virtually identical to Chevrolet's. The company successfully made the case that GMC customers are willing to pay more for those trucks than Chevrolet's -- and may not even consider buying a Chevy -- making the brand critical to GM's profitability.
GM's Sierra and Silverado compete with the F-150 from Ford Motor (F, news, msgs) and the Dodge Ram made by Chrysler. Redesigns of the F-150 and Ram were launched in late 2008 with some features that the GM models lack. The Silverado and Sierra got their last major update in late 2006.
In an interview at the auto show, GM's Stephens said Whitacre approved a top-to-bottom exterior redesign and engineering overhaul to make the vehicles guzzle less gas without giving up any of their capabilities, such as cargo capacity.
The makeover is more extensive than what GM had planned heading into bankruptcy and will be one of the company's biggest redesign efforts this year.
Full-size trucks "have been and will continue to be important to us," Stephens said. Some customers who bought the vehicles for personal rather than business use won't return to the market, he said, but demand among contractors and small businesses will remain solid.
"When the housing industry starts to pick up, you will see truck sales increase immediately and companies will need to have fresh products out there," said Ivan Drury, an analyst with car shopping Web site Edmunds.com.
GM's new trucks won't likely launch until 2012 or 2013. A team of designers recently showed off their latest mock-ups of the vehicles and said more funding would help create a more eye-catching look. Stephens said he took the request to Whitacre, who immediately approved the additional expense.
http://articles.moneycentral.msn.com/Investing/Extra/gm-bets-on-trucks-for-its-future.aspx
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