Before gas hit $4 a gallon, General Motors relied on large trucks and SUVs for most of its profits. In fact, one GM exec once told Leftlane that it only costs about $6,000 to $7,000 more to produce a Cadillac Escalade than it does to produce a Chevrolet Malibu – resulting in an incredible $30,000+ profit difference! However, the good times are over for GM and the auto giant is now looking to its small cars for big profits.
In order to generate more profits from its small car program, GM will likely raise prices on its small car offerings – a plan that is not without its pitfalls.
Because GM has historically focused so much more on its trucks and SUVs than its small cars, the Detroit automaker has a relative small share of the small car segment. According to Automotive News, GM has a 50 percent share of the SUV market, but only a 13 percent stake in the small car market. Therefore it’s going to be difficult to convince the market to pay more for a vehicle lineup buyers are generally less familiar with.
And it won’t be any easier in the coming years to get the word out about new GM cars, even if their quality and performance are tops in the segment. To help aid its North American turnaround, GM recently announced that it will be cutting its marketing budget by $1 billion. “That’s challenging, and it’ll be even more challenging now,” GM sales and marketing head Mark LaNeve said of the situation.
Instead, GM is banking that the recent spike in small car demand will be enough to allow the price hike in a rather price-sensitive segment. But with the small car segment quickly becoming the most competitive in the industry, there are plenty of risks involved with the plan. The first car to be priced under the new strategy will likely be the Chevrolet Cruze, which will reportedly sticker for a few thousand more than the Chevy Cobalt.
