Ask the Best and Brightest: Why is GM Boosting Yukatahoeburbelade Production?
While Toyota has frozen its full-size pickup truck and SUV production lines, GM is, surprisingly enough, about to do the opposite. A few months ago, GM announced production cutbacks at the Arlington, Texas plant that produces the Yukon, Tahoe, Suburban, Escalade and Dual-Mode Hybrid SUV’s. In addition to the usual two-week summer break, the plant was scheduled to be closed for five more weeks through the rest of the year. Ostensibly, the cutback was designed to prevent the trucks from piling-up on dealer lots. Starting next month, the previously laid-off workers will be back for an additional four-and-a-half hours overtime per week, plus a few Saturdays. GM cites the recent decline in gas prices and hefty incentives as the reason behind the volte-face. The General claims the “back to work you scurvy bastards” decision has nothing to do with the impending December 2008 closure of Janesville, Wisconsin plant–that also builds Yukahoes. Nor anything to do with future production cuts. What say you?
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I disagree. Nothing changes human habits more quickly and permanently than trauma. Consumers will not forget the you-know-what at the pump in a hurry. It's not a question of intelligence, but of simple [economic] survival.
GM is a company that is driven by numbers. So I'm going to guess that it has something to do with trying to hit numbers. My guess is that they want to hit some sales number, so that they can "prove" that GM is positioned to grow in 2009. Being able to say that "GM SUV sales went up X%" will earn them headlines for another day, even if they have to give them away -- the media will report the sales figure, not the incentives that got them there. I'd put lower odds on this, but it may also be the first step toward killing the Volt, which is behind schedule and probably over budget. If SUV's sales can be made to look as if they are growing again, GM could eventually use a market-based justification to kill off the Volt, even though they really would be motivated to cancel it just because they can't make it work.
Folks, don't forget that a Suburban that is loaded with a family going on vacation or even to soccer games is still a fantastic vehicle that is efficient and capable. Not all large families can fit in Mazda 5's. Yes, demand will be way down on these because people will stop using them for personal transportation (and that is a very good thing). That's what we're seeing now. But the Suburban is still the ultimate family carry-all, and there will always be some demand for them. Their buyers are, for the most part, not the bumbling idiots that many of you like to characterize them as. There are currently no 8 passenger vehicles on the market with more than high 20's in mpg's on the highway--don't forget that. The first company to make such a vehicle that does north of 30 on the highway has something great to market.
I doubt that lower gas prices will be enough to boost sales of new Tahoes and Suburbans. Many of those vehicles were financed with home equity loans. Given the bursting of the real estate bubble, that source of financing is gone for many people. They will have to pay for those vehicles out of their income, and most people simply do not have the income to buy a brand-new Tahoe or Suburban. The bottom line is that the housing boom allowed many people to buy vehicles that they otherwise could not afford. Now the party is over. In the future, the real action will be in the $18-24,000 price bracket. If GM can't make money by selling vehicles at those prices, it is toast.