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For GM, big dreams depend on small cars

July 26, 2009

For GM, big dreams depend on small cars

Experts: GM must reverse history, make models consumers want

BY MARK PHELAN
FREE PRESS AUTO CRITIC

Can General Motors Co. build a first-rate small car in America and make money selling it? Forty years of history says no, but the automaker’s fate — and thousands of jobs at plants in Michigan and Ohio — rests on its ability to end a litany of failures dating to the 1971 Chevrolet Vega. GM sold 2.8 million compact and smaller cars around the world in 2008. From China to Europe to Brazil, GM’s Chevrolet and Opel small cars match the best from Honda, Toyota and Volkswagen.

The 443,000 small cars GM sold in the United States were the exception to that. For nearly four decades, GM’s North American operations seemed to build small cars out of a sense of obligation more than a desire to compete.

There’s an explanation for that — though it’s one only an accountant could love. GM made less money on small cars than bigger ones and trucks. It got a better return on its investment by concentrating money and resources on trucks. GM had to build small cars to meet federal fuel economy requirements, but the law couldn’t force it to build good cars.

"They never really had their heart in it," said Joe Phillippi, principal of AutoTrends Consulting in Short Hills, N.J.

Compact, subcompact and tiny mini cars are never likely to outsell larger vehicles in the United States. But with truck sales expected to fall and gas prices certain to rise, GM can no longer afford to lose money on small cars. The new generation of vehicles GM will introduce beginning next year must be good enough to sell for the same price as competitors, like the Honda Civic compact and Toyota Yaris.

"GM has a lot of resistance to get past," said Stephanie Brinley of the consulting firm AutoPacific. "To get the same price as a Civic, a Chevrolet has to be better than the Honda," she said. "They’ve got to knock it out of the ballpark. GM is capable of doing that."

A look at GM’s current model lineup helps explain Brinley’s optimism.

The compact Chevrolet Cobalt beats the Civic and essentially matches the Toyota Corolla on fuel economy. The Saturn Astra’s fuel economy easily tops the VW Golf and Nissan Sentra.

Despite that, neither car has sold as well as GM expected. The Cobalt suffers from bland styling and an unappealing interior. The European-built Astra lacks features Americans want, like easily accessible cup holders and compatibility with iPods.

"GM has to get the formula right for the price and the features Americans want," Brinley said. "Vehicles like the Chevrolet Malibu and the new Chevy Equinox and Buick LaCrosse show they can do that, but GM has to get out of the business of trying to do small cars that are ‘good enough.’ They have to do every car incredibly well."

The Chevrolet Cruze compact that replaces the Cobalt in 2010 is the first test. It looks great on paper, with more room than a Civic or Corolla and the promise of more than 40 miles per gallon highway fuel economy — but GM knows that’s not enough.

"Selling small cars today requires top-notch quality and safety, world-class fuel economy, good performance as well as connectivity — the ability to stay connected with your friends, be reachable and listen to your music when you want to," said GM product development chief Tom Stephens. "We have to do all of this at an attractive price and with great designs that make people’s hearts race."

The mechanical pieces are in place. GM’s European and Asian engineering centers, which do compact and smaller cars very well, engineered the platforms underpinning the upcoming U.S. models.

Whether the cars will have the looks and features American buyers want is in the hands of GM’s American executives. Without the cash cushion of booming truck sales to fall back on, this may be their last chance to get it right.

Contact MARK PHELAN: phelan@freepress.com or 313-222-6731.

RELATED STORY: http://www.freep.com/article/20090726/BUSINESS01/907260452/1014/BUSINESS01/Small-cars-are-key-to-GM-recovery">Small cars are key to GM recovery.

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