GMC Yukon hybrid
GM’s 2008 GMC Yukon hybrid could produce a ‘halo’ effect.
By Roland Jones Business news editor
updated 10/3/2007 3:52:40 PM ET 2007-10-03T19:52:40

General Motors took a major step forward last week in its bid to boost its fading fortunes, but it’s probably not the one you’re thinking of.

True, GM clinched a new four-year labor contract with striking United Auto Workers that, if ratified by union members, could put the automaker on more even footing with its Asian rivals. But in a less noticed-move that ultimately could prove nearly as important, GM provided new details about the industry's first full-size hybrid gas-and-electric-powered sport utility vehicles, which will appear on dealers’ lots in late December.

The new hybrid versions of the Chevy Tahoe and GMC Yukon will offer an impressive 21 miles per gallon in city driving and 22 miles per gallon on the highway, according to official mileage estimates from the Environmental Protection Agency, issued Thursday. That’s a 30 percent gain in overall fuel economy and 50 percent for city driving, making the new SUVs as fuel-efficient in the city as a four-cylinder Toyota Camry.

Although sales of large SUVs have taken a hit in recent years as gasoline prices have risen, with once-popular models seeing big production cuts and buyers flocking to so-called “crossover” vehicles, many buyers still want a large vehicle or one with the ability to tow large loads. A strong reception for the new hybrid SUVs could help boost sales of other GM vehicles by creating a “halo” effect for the company, said Tom Appel, editor of Consumer Guide Automotive, which offers buying advice to car shoppers.

GM could use a halo effect as it markets important new sedans such as the Saturn Aura, midsize Cadillac CTS and forthcoming Chevy Malibu.

“GM has been heavily reliant on fleet sales and they need to get into consumer retail more,” Appel said. “And this is the sort of good news that helps you sell product overall.”

Good product is vital to GM’s success. The automaker has reduced capacity, pared its workforce, shut plants and scored a victory with its union deal on health care, which removes some $50 billion in health-care liabilities from its books. Now GM is relying on some hit new models to drive up sales and revenue.

Sales of GM’s top brands of Buick, Cadillac and Chevy are down sharply so far this year. Only the GMC and Saturn brands are showing a gain. GM has low sales projections for its two hybrid SUVs, but their impact could still be significant, Appel said.

“[These new hybrid SUVs] might not be the one product that contributes to GM’s financial success, but I think they will contribute to GM’s overall renaissance,” he said. “The ability to take a very heavy vehicle and give it really good fuel economy speaks volumes about GM’s reinvestment in its products and future products.”

Jointly developed with BMW and DaimlerChrysler, GM’s “two-mode” hybrid system could lead to a revitalization of SUV sales. It also reportedly will be featured on GM’s full-size pick-up trucks in 2009 as well as the Dodge Durango, Chrysler Aspen, Mercedes-Benz ML and BMW’s X6 SUVs.

The “two-mode” system allows the Yukon and Tahoe to travel using electrical power at speeds up to 30 mph before the gas engine kicks in, while GM’s “Active Fuel Management” system saves additional fuel by disengaging half of the engine’s cylinders when full power is not required. GM also improved aerodynamics and reduced the weight of some components to offset the added weight of the hybrid battery pack.

Large SUVs are excellent candidate for hybrid drive, notes Karl Brauer, editor in chief at automotive research site Heavy vehicles use large amounts of gas moving from a standing start to 5 mph, but hybrids use stored electricity to get rolling, so that gas is saved.

“I think these vehicles will be really important,” Brauer said. “Even before the price of gas went up people were wondering if these big SUVs were a fad, but I think the genie is out of the bottle. Americans have been spoiled with big, roomy utilitarian vehicles, and I don’t think they want to give them up, even with the price of gas going up. They don’t want to give up on space and don’t want to burn too much fuel. So the ultimate fulfillment of all these needs is a high-mileage, fuel-efficient SUV, and that is what GM is going after with these two SUVs.”

Brauer expects hybrid technology to become more common in American vehicles, much as fuel-injection technology has become common.

“I think hybrid drive trains are the next fuel injection,” he said. “The technology helps performance and fuel economy, and as the technology shrinks and the battery and motors become smaller they will become ubiquitous. We are at a point now where you can add fuel injection to any old car, and I see that coming for hybrid technology.”

The hybrid Tahoe and Yukon could even revitalize sales in the SUV segment, said Aaron Bragman, an analyst at consultancy Global Insight.

“Given Americans’ historical love affair with large vehicles, offering SUVs that achieve mileage comparable to a midsize sedan could be just the ticket to breathing new life into a segment many had written off as doomed,” he said in a research note.

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