BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific Arabic Spanish Russian Chinese Welsh

 You are in:  Business
Front Page 
UK Politics 
Market Data 
Your Money 
Business Basics 
Talking Point 
In Depth 

Commonwealth Games 2002

BBC Sport

BBC Weather

Wednesday, 27 March, 2002, 22:01 GMT
GM bets big on new small car
GM's Saturn Ion
GM hopes to revitalise Saturn with the new Ion
test hello test
by David Schepp
BBC News Online's North America business reporter

Bob Lutz is very pragmatic about the need for General Motors to be competitive in developing and selling small cars in the US.

As head of design for the world's largest auto maker, Mr Lutz says GM must market as many small cars as it does big trucks in order to avoid penalties for failing to meet federal fuel-efficiency guidelines.

GM Vice-Chairman Robert Lutz
Bob Lutz is a car guy's car guy

But there is another reason to boost competitiveness within the small car sector - to attract youthful buyers, and thereby instil brand loyalty.

"You have to bring people in at some point," Mr Lutz told BBC News Online.

"And having exciting, attractive, high-performance small cars that are cool is a very good way of doing it."

Conservation conundrum

Sceptics have reason to be doubtful.

GM has had little success in marketing small cars and readily admits it looses an average of $2,000 on each small car it sells.

GM's recent surge in share price and profits are thanks to impressive sales of its large sport-utility vehicles (SUVs), not increased sales of its aging fleet of passenger cars.

GM sells petrol-guzzling SUVs easily and at a tidy profit, too.

The popularity of SUVs, Mr Lutz says, can partly be blamed on the low cost of petrol in the US.

The only way Americans will take seriously the ideas of conserving fuel and reducing dependency on foreign oil is if the price of petrol is increased, he says.

"Otherwise, Americans will continue to vote for the largest vehicle they can afford with the biggest and most powerful V8 engine," Mr Lutz says.

Boosting fuel economy

GM's renewed focus on small cars and fuel economy comes at a time when the cost of petrol in the US is near historic lows.

Vice president of Saturn sales, marketing and service, Jill Lajdziak
Lajdziak: Ion will re-energize the small-car market

Nevertheless, in order to meet federal mandates, sales of popular large vehicles with big engines must be offset by an equal number of small vehicles with small engines that get good gas mileage.

"Our fleet average has to total a certain number," Mr Lutz said.

That standard is referred to as corporate average fuel economy (CAFE) and applies to nearly all auto manufacturers which sell cars in the US.

Standards differ for cars and light trucks (a classification that also includes popular mini-vans and SUVs).

Light trucks are only required to reach an average 20.7 miles per gallon (mpg), while cars need to average 27.5 mpg.

The standards are further complicated by the fact that car makers can offset inefficient trucks that get less than 20.7 mpg with small cars that exceed the average set for automobiles.

With petrol-guzzling trucks in high demand, GM must find a way to sell a lot of small cars.

New Saturn Ion

Knowing this, GM used the occasion of the New York International Auto Show to unveil its first new small car in seven years with the hopes of attracting younger buyers and boosting its fuel economy standing.

Inside of Saturn's new Ion
GM moved Ion's gauges to the centre of the dashboard

To muted fanfare, GM officials launched the long-awaited replacement to the Saturn S-Series compact car, called the Ion.

"The Ion [models] are going to re-energise the small-car arena," Jill Lajdziak, head of Saturn marketing, told reporters at the unveiling on Wednesday.

Part of what makes the new Saturn models unique is the ability to personalise them, including the use of interchangeable roof panels and interior pieces that the car owner can choose.

The cars also feature larger, more powerful engines that GM says also get better gas mileage than the smaller ones they replace.

Competitive field

Allowing Saturn to debut GM's first new small car in many years is a smart strategy, said Csaba Csere, editor-in-chief for Car & Driver magazine.

"Saturn has a pretty good foothold in the small-car market," he said.

Unlike its corporate brethren, Saturn has enjoyed much success in selling small cars.

For the first eight years of the brand's existence, Saturn sold just the one model and garnered legions of loyal customers who fell in love as much with the way the cars were sold as the cars themselves.

Since its launch in 1991, Saturn has sold more than 2 million S-Series coupes, saloons and estates.

Asian threat

In recent years, however, sales have declined as younger buyers embraced less expensive and better equipped models from the Pacific Rim.

The Asian threat to the small car market is substantial thanks in part to an exchange rate that favours South Korea's Won.

Korean manufacturers such as Hyundai enjoy as much as a $4,000 (2,809) advantage over comparable US models, which can be invested in more features or more labour hours, which improves quality.

"With a $4,000 cost advantage, you can afford to do things better," GM's Mr Lutz said.

With GM's recent momentum and Bob Lutz's leadership, few analysts are betting against its success in launching the new Ion.

Still, the automaker faces an uphill road in convincing consumers that its latest small-car offering is worthy of its premium.

See also:

07 Jan 02 | Business
Car giant's image makeover
11 Mar 02 | Business
Saab steps up the pace
19 Feb 02 | Business
GM sees Daewoo deal in 60 days
Internet links:

The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.

E-mail this story to a friend

Links to more Business stories