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GM’s turnaround rides on a successful Chevy

Image: Chevrolet Volt
Much is riding on the Chevy Volt extended-range electric car, due to hit showrooms at the end of 2010.Paul Sancya / AP file
/ Source: Business Week

As General Motors emerges from bankruptcy reorganization to launch a new era, it is no exaggeration to say that as goes Chevrolet, so goes General Motors.

The Chevrolet brand has always been central to GM's fortunes. It's the division with the largest sales volume, after all. But at times, Chevy has suffered, along with GM's other brands, from neglect, mismanagement, and the automotive equivalent of malnutrition — a shortage of competitive models, and models sitting without updates in showrooms well past their sell-by date.

To see the results, just look at some market-share numbers. Through the first half of this year, Chevrolet had a 12.3 percent slice of the U.S. auto market, according to Autodata. GM as a whole had a 19.7 percent share. GM has agreements in place to sell Saab, Hummer, and Saturn, and it is closing Pontiac. The brands that will remain with the new GM, besides Chevy, are Buick, GMC, and Cadillac. Together, those three accounted for just 4.4 percent market share.

Suffering from brand dilution
Today, Chevrolet markets six passenger cars, eight sport-utility vehicles and vans, and three pickup trucks. That's 17 distinct product lines, adding up to a little more than 12 percent market share. Toyota, not including Scion and Lexus, has 17 models, and 14.1 percent share. That doesn't speak well of Chevy's efficiency. And yet, so low are the expectations for GM that many people might think the gap between Chevy and Toyota was even larger.

"If GM had not diluted and shortchanged Chevy over the years to prop up brands like Saturn, Saab, and Hummer, it would be a more powerful brand right now," says Earl Hesterberg, CEO of Group 1 Automotive and former top marketing executive at Ford Motor, Chevy's nemesis. Group 1, a large automotive retailer, has five Chevy dealerships.

Indeed, through the years, billions went into marketing and designing cars and trucks for those ultimately unsuccessful GM brands. Budgets were stretched so tight that GM continued to sell essentially the same vehicles across its hungry brands to fill out their showrooms, with little money to substantially differentiate, say, a Saturn Outlook SUV from a GMC Acadia SUV. And in the case of those SUVs, Chevy didn't even get its version until more than a year after Saturn. The whole system left Chevy dealers scrambling to compete for customers against GM's own Saturn and GMC, instead of focusing on beating Ford and Toyota.

Japanese stumble with trucks
For all its problems, though, Chevy emerges from bankruptcy with strengths that Asian carmakers can't match. "The reaction to the new Camaro has been very strong, and its pickup truck and large SUV remain at the top of those categories," says Hesterberg.

Indeed, Toyota, Honda, and Nissan have all stumbled in trying to sell full-size pickup trucks. Toyota sold just over 9,000 Sequoia SUVs in the first half of the year, whereas Chevy sold almost 50,000 Suburbans and Tahoes. Toyota has sold just 36,000 Tundra pickups in the first half, compared with Chevy's 150,000 Silverados. And neither Honda nor Toyota have competed much in the muscle-car category, where the nifty new Camaro plays.

What worries GM, though, is not so much the pickup and SUV business, where it will continue to battle Ford and to a lesser degree, Dodge. "Chevy's, and GM's, worry is how the company will perform in the passenger car and small SUV business, where Toyota has dominated Ford and Chevy," says Dan Gorrell of industry consultancy AutoStrategem. "That is where the U.S. market is going — more cars and small crossover SUVs."

Greater focus on Chevy
Consider that in the first half of the year, Chevy sold only 76,000 Malibu sedans — its best reviewed and most acclaimed family car, designed to specifically take on Toyota's Camry — compared with 150,000 Camry/Solara models. And for years, Chevy has been barely competitive in the compact crossover segment with its Equinox SUV, which sold 25,000 in the past six months, compared with 62,000 Toyota RAV4 SUVs and 79,000 Honda CR-Vs. The all-new Equinox, launched earlier this year, is substantially better than the old model, but it is an example of how Chevy has put up weak entries in important product segments. And it will take time for consumers to even notice some of its latest designs.

To change marketplace perceptions, Chevy may need to overhaul its marketing and advertising. GM's sales and marketing chief, Mark LaNeve, insists a remake is not in order, and that Chevy will benefit from GM's more focused attention. By spreading its dwindling resources the past few years across too many weak brands and dealers, GM shorted Chevy on necessary expenditures to design and sell new cars against Toyota and Ford.

Until the 2007 Malibu launch, for example, Chevy took on Toyota's Camry with only a smallish, generic sedan — the previous Malibu — that was a bigger hit at car-rental lots than dealer showrooms. When the new Malibu arrived, its annual marketing budget trailed Camry's by more than $100 million. Coming out of bankruptcy, LaNeve says, it will take Chevy at least three years to catch up to Toyota's marketing outlays.

High-quality marks
Through the years, Chevy has been responsible for some iconic advertising campaigns. It dominated pickup-truck culture during the 1980s and '90s with its "Like a Rock" campaign. Its cars were backed for years by "Heartbeat of America." Go back to the 1950s and the brand was easily identified through "Drive the USA in Your Chevrolet." For most of Chevy's history, ad agency Campbell-Ewald, of Warren, Mich., has handled its ads. But the work in recent years hasn't been so memorable. New GM CEO Fritz Henderson says: "There are lots of marketing questions we have to answer, and we will answer them soon." Some of GM's longtime ad agencies will have to fight in the coming months to keep their assignments.

An even more fundamental question needs asking, though: What is Chevy these days? It won't be a discount brand, says LaNeve. "But its chief benefit will be a great car or truck that everyone can afford to own." Put another way, LaNeve says, "Chevy needs to stand for the democratization of greatness in vehicle design, safety, and fuel economy, as well as quality." For a few years now, Chevy has been advertising "An American Revolution." The campaign has had some bright moments, such as John Mellencamp singing to the pickup crowd and Mary J. Blige crooning for cars. But on the whole, it has lacked the iconic quality of past efforts.

Chevy has been making legitimate strides in quality, but that has gone unnoticed by too many car buyers. In the most recent J.D. Power & Associates Initial Quality Study, which measures "things gone wrong" in the first 90 days of ownership, Chevy scored well above the industry average, at 103 problems per 100 vehicles. Toyota scored 101, putting the brands at a virtual tie.

Waiting for the Volt
"That kind of parity in quality is a recent phenomenon," says industry consultant Gorrell. Or, take another area where Detroit has often lagged, vehicle interiors. Only new models such as the Malibu, Equinox, and Tahoe have the kind of upgraded seat designs, instrument panels, and superior-grade plastics that send the right signals of "perceived quality" to the consumer. GM needs to make a habit of that. "It is going to take time and a lot of work to close the perception gap with consumers," Gorrell says.

It's encouraging that Chevy's new Camaro has drawn high praise from reviewers. That shows Detroit, for all its woes, still knows how to engage the public with hot sheet metal. What's unclear is whether GM can make the same connection through fuel economy. Much is riding on the Chevy Volt extended-range electric car, due to hit showrooms at the end of 2010. The car is said to go 40 miles on a battery charge before an onboard gas-powered motor kicks in to power the battery. The electric range alone could give buyers who drive fewer than 40 miles a day an endless number of gas-free driving days, an innovation that GM hopes will catapault the company's reputation, much as the Prius hybrid did for Toyota.

"It will be interesting to see what GM can make of Chevy when it focuses the talent that produces the industry's best pickups, SUVs, and a hot Camaro on turning out equally good small and midsize family cars," says independent marketing and design consultant Dennis Keene. If Chevy doesn't succeed, it's unlikely GM will, either.