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An article about niche cars such as Solstice...

Lower volumes can mean high profits for carmakers

Companies rely more on a greater variety of specialty and niche cars to attract shoppers.

By Ed Garsten / The Detroit News

Blockbuster sales of the Chrysler 300 and Ford Mustang help ring up profits for automakers, but the new car and truck market is fragmenting into a greater number of vehicles sold at lower volumes -- 50,000 units a year or fewer.

The shift is aimed at addressing the more diverse needs of consumers and families, putting under-utilized factories and workers to good use and saving automakers billions of dollars.

Since 1985, the average annual sales per nameplate has plummeted from 106,819 to 48,626, and that number is expected to drop even further to 40,000 by 2010, according to Jerry Mosingo, chief operating officer at ASC Inc., a Southgate-based specialty vehicle producer.

"With 344 cars and trucks to choose from in the United States, we're already at low-volume, niche levels," said John Waraniak, head of the Automotive Center of Excellence at Troy-based TATA Consultancy Services.

The change is forcing automakers to allocate financial resources to design, engineer and manufacture cars and trucks in different ways.

Toyota Motor Corp. created the Scion brand to serve the needs of younger consumers on a budget. But rather than build new plants such as GM did when it launched Saturn in the 1980s, Toyota is using existing Japanese plants to build Scion models. Toyota officials insist Scion will not become a high-volume brand.

The Japanese automaker's Toyota Camry sold more units in July than the Scion tC has through the first seven months of the year.

The mission of General Motors Corp.'s 3-year-old Performance Division is to develop low-volume cars and trucks such as the just-launched Pontiac Solstice, Saturn Sky, Pontiac GTO, Cadillac Escalade Platinum and Chevrolet SS series vehicles.

Mark Reuss, who heads the division, says it's becoming increasingly difficult to make a business case for high-volume vehicle programs.

"Five high-volume midsize cars -- that's a tough deal these days," Reuss said in an interview. "The market is going to be asking for things we've got to be able to do quickly, with very high quality, and a nice return."

While GM expects Solstice production to reach only 20,000 units annually, low-volume vehicles can collectively chalk up some serious sales, revenues and profits. The automaker sold 250,000 vehicles in 2004 that were developed by its Performance Division, Reuss said.

A low-volume passenger car for GM's Buick brand is being considered that would serve as a halo vehicle to bring attention to the brand, Reuss said.

What may be even more attention-getting to automakers are the billions in potential profits they could reap by taking advantage of unused manufacturing capacity to build low-volume vehicles.

With 3.4 million units of underutilized manufacturing capacity in North America, ASC's Mosingo says the industry could realize potential profits of $20 billion by converting plants to build low-volume models.

GM is attempting to capture its share of that bounty by building the Solstice, Saturn Sky, as well as versions for Opel and Vauxhall to be sold in Europe, at its Wilmington, Del., assembly plant. The factory was once dedicated to building only the discontinued Saturn L-series midsize sedan and wagon.

The three new roadster models still aren't enough to fully maximize the plant's capacity, leaving open the possibility of building even more vehicles there.

Reuss says the same tactic can be employed to maximize the use of plants and workers idled when demand slips for high-volume vehicles.

"You don't want to walk that capacity out of the place just because you're going through a tough time," he said. "We're going to keep the capacity in there, and we're going to make the money number and get the revenue stream going."

Still, GM and Ford are expected to close some North American assembly plants in coming years to counter falling sales. And plants that remain open are expected to be converted to become more flexible and capable of building multiple models, even in smaller sales volumes.

Low-volume vehicles also lend themselves to customization, which has become a $30 billion-a-year business, according to TATA's Waraniak.

While the bulk of those revenues go to automotive accessories makers and customizing shops, Waraniak says automakers are reaching for their piece of the action to the tune of $10 billion a year as they market their own brand of parts and accessories.

While low-volume vehicles may seem to live at the edge of the mainstream market, Waraniak warns that automakers who disregard the shift will miss out on future sales and profits.

"You have to give the consumer what they want," he said. "If you're not living on the edge, you're just taking up space."
http://www.detnews.com/2005/autosinsider/0508/14/B01-279637.htm
 

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The MR2 came to mind when I read this. Toyota will build a very limited MR2 for about 5 years and then quit for several years and start a new generation. They just stopped the 3rd generation of MR2s and people are already freaking out. I believe that they will build a model closer to the 2nd generation next, which to this day sells at a high premium.
 

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Pontiac had a low-vol car. It didn't make any money or friends for GM. Thank goodness AZTEK is being sent from the stable to the glue factory.
 

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The Solstice, while considered by GM to be a low volume car, it can't be as low as the Ford GT. Article in today's paper, two local Ford dealers each took possession of a Ford GT. At least one is a special edition LeMans White with Blue stripes. MSRP about $125,000 and they each (unrelated to each other) are taking bids on the cars and noone local has stepped up yet, bids al;ready approaching 175k and they expect to be able to peddle these in CA for about 250k.
 
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