Chevy's plan: Offer more from less
#1
Speaks French in Russian
![](https://www.clublexus.com/forums/images/ranks/rank-smod2.gif)
Thread Starter
![Default](https://www.clublexus.com/forums/images/icons/icon1.gif)
Chevy's plan: More from less
GM puts a lid on Impala output to boost pricing
Jamie LaReau | | Automotive News / March 20, 2006 - 6:00 am
http://www.autonews.com/apps/pbcs.dl...fsect=BREAKING
GM puts a lid on Impala output to boost pricing
Jamie LaReau | | Automotive News / March 20, 2006 - 6:00 am
Code:
Price bump GM wants to protect the transaction price for the Chevrolet Impala, which is riding high with the launch of the new version. Feb. ’06 $22,082 Feb. ’05 $20,387 Feb. ’04 $20,006 Feb. ’03 $20,245 Source: Power Information Network
DETROIT -- How do you make more profit while selling fewer vehicles? By controlling inventory and squeezing more revenue out of each transaction.
General Motors is capping production of the Chevrolet Impala sedan at 250,000 units for sale in the United States and Canada this year, a knowledgeable source says. That means GM is sacrificing about 60,000 sales of its best-selling car. GM also will emphasize higher trim levels to increase transaction prices.
The automaker is trading unit volume for what it expects will be higher transaction prices, lower incentives and higher residual values. One key goal: Cut fleet sales of the Impala, which hit 50 percent of total Impala sales last year.
GM also will cut costs by cutting the third shift at the Oshawa, Ontario, plant where the Impala is assembled.
GM is adjusting production on other good sellers to manage inventory and extract more revenue out of each transaction. The source says GM will hold production of the Chevrolet HHR at 120,000 units rather than add capacity to build more of the popular sport wagon.
By contrast, GM is increasing production of higher-priced versions of the so-far-successful new Tahoe large SUV.
Sale prices rise
GM's is seeing higher transaction prices for the new Impala, which came out last fall, and the new Tahoe.
According to J.D. Power and Associates' Power Information Network, the 2006 Impala's average transaction price last month was $22,082, compared with the 2005 model's average transaction of $20,387 a year earlier. (See box.) The base Impala starts at $20,990, including shipping. The top Impala model starts at $26,990.
The 2007 Tahoe's average transaction price in February was $41,233, compared with the 2006 model's average transaction price last February of $34,546, according to the PIN data.
The 2007 Tahoe's average turn rate is 13 days, compared with 94 days for the 2006 model. The top-line model Tahoe has a sticker price at $38,990, including shipping.
U.S. Tahoe sales for the first two months of 2006 were 28,524, up 49.8 percent from the year-ago period, according to the Automotive News Data Center.
Chevrolet General Manager Ed Peper says demand is strong for the high-trim versions of the Tahoe, prompting GM to build more 3LT and LTZ models.
Chevrolet executives monitor dealers' orders daily and make production adjustments, Peper says. One surprise, he says, has been sales of the high-trim Impala SS models with V-8 engines, which the old model didn't have.
In 2004 GM built 296,594 Impala sedans, and last year built 258,524 as it phased out the old version and ramped up to build the new one. GM sold 311,135 Impalas in the United States and Canada in 2004, the last full year of production of the old model.
GM could easily sell 300,000 Impalas this year, the source estimates. But GM is set to cut a third shift sometime this year at the Oshawa plant. GM added the shift in June 2002.
GM would have to keep that shift if it were to build the maximum capacity, the source says.
Peper would not comment on the shift. But he says GM wants to limit fleet sales and increase retail sales to bolster residual values.
50% fleet
Last year, fleet sales were slightly more than 50 percent of Impala sales, says a source familiar with the data who asked to not be identified. Those data include 2005 and 2006 models. Fleet sales of a key competitor, the Toyota Camry, were less than 10 percent of overall 2005 sales, the source said.
According to figures from Automotive Lease Guide in Santa Barbara, Calif., the 36-month residual on the 2006 base Impala LS is 42 percent. That jumps to 44 percent on the LT model with the 3.8-liter V-6 and 45 percent on the high-trim SS model.
The 36-month residual on the base Camry is 49 percent, and it's 51 percent on the top-line Camry XLE V-6, according to Automotive Lease Guide.
At the end of last year, Chevrolet increased production of the HHR and will boost it again this year, Peper says. He declined to give a specific number. But a knowledgeable source says that after "several capacity adjustments," GM plans to build about 120,000 HHRs this model year.
"That's max without building additional capacity," the source adds.
Chevrolet launched the HHR last June and sold 41,011 of the sport wagons in 2005. During the first two months of this year Chevrolet sold 16,610, according to the Automotive News Data Center.
Managing Tahoe production is complicated by the fact that it is part of a group of full-sized SUVs coming out of the Janesville, Wis.; Arlington, Texas; and Silao, Mexico, assembly plants. That means that any changes to Tahoe production must take into account the coming launches of the Chevrolet Suburban SUV, due in late April, and the Avalanche pickup, due this summer.
Other full-sized SUVs built in those plants are the GMC Yukon and Yukon XL and the Cadillac Escalade, Escalade EXT and Escalade ESV.
In 2005, according to the Automotive News Data Center, GM built 495,201 trucks at all three plants combined, on two shifts.
General Motors is capping production of the Chevrolet Impala sedan at 250,000 units for sale in the United States and Canada this year, a knowledgeable source says. That means GM is sacrificing about 60,000 sales of its best-selling car. GM also will emphasize higher trim levels to increase transaction prices.
The automaker is trading unit volume for what it expects will be higher transaction prices, lower incentives and higher residual values. One key goal: Cut fleet sales of the Impala, which hit 50 percent of total Impala sales last year.
GM also will cut costs by cutting the third shift at the Oshawa, Ontario, plant where the Impala is assembled.
GM is adjusting production on other good sellers to manage inventory and extract more revenue out of each transaction. The source says GM will hold production of the Chevrolet HHR at 120,000 units rather than add capacity to build more of the popular sport wagon.
By contrast, GM is increasing production of higher-priced versions of the so-far-successful new Tahoe large SUV.
Sale prices rise
GM's is seeing higher transaction prices for the new Impala, which came out last fall, and the new Tahoe.
According to J.D. Power and Associates' Power Information Network, the 2006 Impala's average transaction price last month was $22,082, compared with the 2005 model's average transaction of $20,387 a year earlier. (See box.) The base Impala starts at $20,990, including shipping. The top Impala model starts at $26,990.
The 2007 Tahoe's average transaction price in February was $41,233, compared with the 2006 model's average transaction price last February of $34,546, according to the PIN data.
The 2007 Tahoe's average turn rate is 13 days, compared with 94 days for the 2006 model. The top-line model Tahoe has a sticker price at $38,990, including shipping.
U.S. Tahoe sales for the first two months of 2006 were 28,524, up 49.8 percent from the year-ago period, according to the Automotive News Data Center.
Chevrolet General Manager Ed Peper says demand is strong for the high-trim versions of the Tahoe, prompting GM to build more 3LT and LTZ models.
Chevrolet executives monitor dealers' orders daily and make production adjustments, Peper says. One surprise, he says, has been sales of the high-trim Impala SS models with V-8 engines, which the old model didn't have.
In 2004 GM built 296,594 Impala sedans, and last year built 258,524 as it phased out the old version and ramped up to build the new one. GM sold 311,135 Impalas in the United States and Canada in 2004, the last full year of production of the old model.
GM could easily sell 300,000 Impalas this year, the source estimates. But GM is set to cut a third shift sometime this year at the Oshawa plant. GM added the shift in June 2002.
GM would have to keep that shift if it were to build the maximum capacity, the source says.
Peper would not comment on the shift. But he says GM wants to limit fleet sales and increase retail sales to bolster residual values.
50% fleet
Last year, fleet sales were slightly more than 50 percent of Impala sales, says a source familiar with the data who asked to not be identified. Those data include 2005 and 2006 models. Fleet sales of a key competitor, the Toyota Camry, were less than 10 percent of overall 2005 sales, the source said.
According to figures from Automotive Lease Guide in Santa Barbara, Calif., the 36-month residual on the 2006 base Impala LS is 42 percent. That jumps to 44 percent on the LT model with the 3.8-liter V-6 and 45 percent on the high-trim SS model.
The 36-month residual on the base Camry is 49 percent, and it's 51 percent on the top-line Camry XLE V-6, according to Automotive Lease Guide.
At the end of last year, Chevrolet increased production of the HHR and will boost it again this year, Peper says. He declined to give a specific number. But a knowledgeable source says that after "several capacity adjustments," GM plans to build about 120,000 HHRs this model year.
"That's max without building additional capacity," the source adds.
Chevrolet launched the HHR last June and sold 41,011 of the sport wagons in 2005. During the first two months of this year Chevrolet sold 16,610, according to the Automotive News Data Center.
Managing Tahoe production is complicated by the fact that it is part of a group of full-sized SUVs coming out of the Janesville, Wis.; Arlington, Texas; and Silao, Mexico, assembly plants. That means that any changes to Tahoe production must take into account the coming launches of the Chevrolet Suburban SUV, due in late April, and the Avalanche pickup, due this summer.
Other full-sized SUVs built in those plants are the GMC Yukon and Yukon XL and the Cadillac Escalade, Escalade EXT and Escalade ESV.
In 2005, according to the Automotive News Data Center, GM built 495,201 trucks at all three plants combined, on two shifts.
#2
Speaks French in Russian
![](https://www.clublexus.com/forums/images/ranks/rank-smod2.gif)
Thread Starter
![Default](https://www.clublexus.com/forums/images/icons/icon1.gif)
GMT900 could carry big profits to suppliers
Robert Sherefkin
Automotive News / March 20, 2006 - 6:00 am
Robert Sherefkin
Automotive News / March 20, 2006 - 6:00 am
ETROIT -- General Motors' new full-sized trucks and SUVs are coming with something extra for its most favored suppliers: higher profit margins.
The GMT900 program, deemed crucial to GM's future, could yield profit margins ranging from 5 percent to more than 10 percent for the top 20 suppliers on that program, according to GM officials, supplier executives and documents reviewed by Automotive News.
But here's the rub: GM suppliers invested heavily in the program and are counting on the sheer volume of North America's largest platform. If the volume falls short, suppliers will be hurt.
"Any supplier that cannot make a 5 percent (net after-tax) profit should get out of the business," says a GM executive involved in the program.
Rewarding favored suppliers is a departure for a Big 3 automaker. U.S. automakers' recent history of leaning on their suppliers has sparked a growing wave of falling profits and Chapter 11 reorganizations.
But not all suppliers think they'll make the profits GM says they can expect.
Credit to GM
Craig Fitzgerald, a consultant to auto suppliers, says the average GM supplier won't earn double-digit profits. "GM's purchasing practices are simply too good to allow that to happen. Beside, GM is counting on those profits," says the partner with the firm Plante & Moran PLLC in Southfield, Mich.
Credit rating company Fitch Ratings,of New York, last week said the distress among parts makers is so great that it will limit the ability of Ford Motor Co. - and by extension GM - to reap price cuts and reduce supplier costs.
Typically, suppliers rarely discuss profits expected from any one contract. But one supplier chief who is looking at fatter profits from the GMT900 is Chain Sandhu, the soft-spoken CEO of interior trim supplier NYX Inc."We will make a 5 percent profit," Sandhu, the founder of the suburban Detroit plastic parts maker, said in a recent interview granted with GM's blessing.
Bo Andersson, GM vice president for global purchasing, sets supplier profit margins based on assumed volumes, which vary from supplier to supplier. Sandhu has a lot riding on that calculation because he supplies $75 worth of parts on each vehicle - $70 million annually at peak production. If volume falters, so do Sandhu's margins.
GM appears to be using the GMT900 program to reward its best suppliers. In one case, a top supplier's profit margin is more than 10 percent, according to documents obtained by Automotive News.
To be sure, parts makers face risks despite annual planned volumes of 1.7 million at peak production, or 7,500 per day, according to GM. While the automaker launches the SUVs, anxiety over fuel prices could reduce those volumes and hurt supplier revenue. The full-size pickups launch late this year.
So far, preliminary sales figures indicate sales of the new Chevrolet Tahoe appear strong. The Tahoe, which has been on sale since early January, is up nearly 50 percent through February compared with the same two months of 2005.
More important, GM says it is not discounting the vehicles. Incentives on the older model are as high as $6,000, according to GM (see story, Page 1).
GM begins production this week of the new Chevrolet Suburban at its Silao, Mexico, plant.
GM's most important launch
The GMT900 is GM's single more important launch this decade, says Merrill Lynch analyst John Murphy. The previous large-truck program, GMT800, accounted for about 32 percent of GM's North American production last year. Its successor will be equally important to GM and its large-truck business.
GMT900 is so important, says analyst Murphy, that even if GM sought Chapter 11 bankruptcy protection, the leadership - CEO Rick Wagoner or a creditors committee - "would have to push the program as hard as they can." GM has said repeatedly it has no plans to seek reorganization.
Supplier executive Phillip Fioravante is one of those budgeting for big volumes. The executive vice president of Automotive Lighting Corp. of North America in Farmington Hills, Mich., expects to supply 870,000 headlamps annually on the trucks and SUVs.
GM's SUVs need to succeed soon after their launch for suppliers such as American Axle & Manufacturing Holdings Inc. and Magna International Inc. Each has $1,200 or more of content on each platform. They have invested heavily, so if GM cannot deliver the promised volume they could be left holding the bag.
GM suppliers will not realize the program's full gains until 2007-2008.
But Merrill Lynch forecast GMT900 production of 1.6 million annually during 2007-2008, below the GMT800 peak of 1.85 million in 2003.
"If it's not a winner in the beginning," says an executive at one of the top GMT900 suppliers, "it could be bad news. If you do not have good margins, you could be part of the supply base in bankruptcy court."
GM suppliers have become dependent on its trucks. In the 1990s, GM's full-sized truck program known as the CK accounted for less than 25 percent of GM's total North American production. That percentage grew to 33.6 percent of GM's North American production by 2004 with the improved GMT800 trucks, which launched in 1998. The GMT800 quality improvements were attributed to stiffer frames supplied by Magna and better drivelines from American Axle.
The GMT900 program, deemed crucial to GM's future, could yield profit margins ranging from 5 percent to more than 10 percent for the top 20 suppliers on that program, according to GM officials, supplier executives and documents reviewed by Automotive News.
But here's the rub: GM suppliers invested heavily in the program and are counting on the sheer volume of North America's largest platform. If the volume falls short, suppliers will be hurt.
"Any supplier that cannot make a 5 percent (net after-tax) profit should get out of the business," says a GM executive involved in the program.
Rewarding favored suppliers is a departure for a Big 3 automaker. U.S. automakers' recent history of leaning on their suppliers has sparked a growing wave of falling profits and Chapter 11 reorganizations.
But not all suppliers think they'll make the profits GM says they can expect.
Credit to GM
Craig Fitzgerald, a consultant to auto suppliers, says the average GM supplier won't earn double-digit profits. "GM's purchasing practices are simply too good to allow that to happen. Beside, GM is counting on those profits," says the partner with the firm Plante & Moran PLLC in Southfield, Mich.
Credit rating company Fitch Ratings,of New York, last week said the distress among parts makers is so great that it will limit the ability of Ford Motor Co. - and by extension GM - to reap price cuts and reduce supplier costs.
Typically, suppliers rarely discuss profits expected from any one contract. But one supplier chief who is looking at fatter profits from the GMT900 is Chain Sandhu, the soft-spoken CEO of interior trim supplier NYX Inc."We will make a 5 percent profit," Sandhu, the founder of the suburban Detroit plastic parts maker, said in a recent interview granted with GM's blessing.
Bo Andersson, GM vice president for global purchasing, sets supplier profit margins based on assumed volumes, which vary from supplier to supplier. Sandhu has a lot riding on that calculation because he supplies $75 worth of parts on each vehicle - $70 million annually at peak production. If volume falters, so do Sandhu's margins.
GM appears to be using the GMT900 program to reward its best suppliers. In one case, a top supplier's profit margin is more than 10 percent, according to documents obtained by Automotive News.
To be sure, parts makers face risks despite annual planned volumes of 1.7 million at peak production, or 7,500 per day, according to GM. While the automaker launches the SUVs, anxiety over fuel prices could reduce those volumes and hurt supplier revenue. The full-size pickups launch late this year.
So far, preliminary sales figures indicate sales of the new Chevrolet Tahoe appear strong. The Tahoe, which has been on sale since early January, is up nearly 50 percent through February compared with the same two months of 2005.
More important, GM says it is not discounting the vehicles. Incentives on the older model are as high as $6,000, according to GM (see story, Page 1).
GM begins production this week of the new Chevrolet Suburban at its Silao, Mexico, plant.
GM's most important launch
The GMT900 is GM's single more important launch this decade, says Merrill Lynch analyst John Murphy. The previous large-truck program, GMT800, accounted for about 32 percent of GM's North American production last year. Its successor will be equally important to GM and its large-truck business.
GMT900 is so important, says analyst Murphy, that even if GM sought Chapter 11 bankruptcy protection, the leadership - CEO Rick Wagoner or a creditors committee - "would have to push the program as hard as they can." GM has said repeatedly it has no plans to seek reorganization.
Supplier executive Phillip Fioravante is one of those budgeting for big volumes. The executive vice president of Automotive Lighting Corp. of North America in Farmington Hills, Mich., expects to supply 870,000 headlamps annually on the trucks and SUVs.
GM's SUVs need to succeed soon after their launch for suppliers such as American Axle & Manufacturing Holdings Inc. and Magna International Inc. Each has $1,200 or more of content on each platform. They have invested heavily, so if GM cannot deliver the promised volume they could be left holding the bag.
GM suppliers will not realize the program's full gains until 2007-2008.
But Merrill Lynch forecast GMT900 production of 1.6 million annually during 2007-2008, below the GMT800 peak of 1.85 million in 2003.
"If it's not a winner in the beginning," says an executive at one of the top GMT900 suppliers, "it could be bad news. If you do not have good margins, you could be part of the supply base in bankruptcy court."
GM suppliers have become dependent on its trucks. In the 1990s, GM's full-sized truck program known as the CK accounted for less than 25 percent of GM's total North American production. That percentage grew to 33.6 percent of GM's North American production by 2004 with the improved GMT800 trucks, which launched in 1998. The GMT800 quality improvements were attributed to stiffer frames supplied by Magna and better drivelines from American Axle.
#3
Lexus Fanatic
iTrader: (20)
![Default](https://www.clublexus.com/forums/images/icons/icon1.gif)
Great stuff. Successful inventory and supply chain management appears to be something Toyota and Honda have done for decades.
GM has felt constrained in keeping inventory down because they're stuck with so many union workers who will have nothing to do if they cap output too far, but it sounds like they're getting creative on how to do better.
GM has felt constrained in keeping inventory down because they're stuck with so many union workers who will have nothing to do if they cap output too far, but it sounds like they're getting creative on how to do better.
![Thumb Up](https://www.clublexus.com/forums/images/smilies/thumbsup.gif)
Thread
Thread Starter
Forum
Replies
Last Post
Gojirra99
Car Chat
10
11-17-06 11:14 PM
Gojirra99
Car Chat
6
02-27-06 12:00 PM
GFerg
Car Chat
13
12-05-05 10:12 AM