Wednesday, July 23, 2008

Was he right all along?

Two-and-a-half years ago, maverick investor Kirk Kerkorian's right-hand man, Jerry York, gave a headline-grabbing speech at the Detroit auto show in which he said General Motors Corp. should dump its Hummer and Saab brands. York said Saab wasn't selling enough vehicles to be viable and Hummer, while a strong brand, wasn't drawing buyers to other GM offerings.

Wrong, said GM officials, arguing that Hummer, in particular, was one of its hottest brands. Internal GM research even showed that Hummer was the GM vehicle most young people said they aspired to own some day.

But that was a time when gasoline under $3 a gallon. On Tuesday, GM Chairman Rick Wagoner said that the automaker was undertaking a strategic review of Hummer that could result in GM dumping the macho vehicle brand.

Slowly, it seems, GM is doing what analysts have long said the automaker needs to do: Trimming the number of brands it offers. Wagoner has long argued that GM has the resources to build and market Buick, Cadillac, Chevrolet, GMC, Hummer, Pontiac, Saab and Saturn.

But look at some of GM's recent consolidation moves. The automaker has mostly merged the Buick, Pontiac and GMC brands into one dealership channel. It is shrinking the number of models offered by each of those brands. Buick is down to three models--the LaCrosse, Lucerne and Enclave. GMC's Envoy is a candidate for oblivion as the body-on-frame SUV market collapses. Sales of the Pontiac Grand Prix and Torrent are way off, making those models potential candidates for elimination. In essense, Buick-Pontiac-GMC could become one brand.

GM said recently that Cadillac, Saab and Hummer would be sold under a "premium" dealer channel. But Hummer is now on the endangered species list, and GM is struggling to make a profit on European-built Saabs because of the strong Euro. GM has sold only 10,196 Saabs this year, down 19 percent from a year ago.

Looks like Jerry York's analysis of GM's product line-up wasn't too far off the mark.