Tuesday, February 24, 2009

GM Plans to Eliminate Saab, Saturn, Hummer


GM Plans to Eliminate Saab, Saturn, Hummer and Shrink Pontiac
Feb. 18, 2009

Faced with an urgent need to restructure in order to survive, America's largest automaker plans to eliminate three of its brands quickly and shrink a fourth to become a niche brand that will make only a handful of low-volume models.

In a restructuring plan submitted to the federal government yesterday, the automaker announced that it "has committed to focus its resources primarily on its core brands: Chevrolet, Cadillac, Buick and GMC. Of the remaining brands, Pontiac -- which is part of the Buick-Pontiac-GMC retail channel -- will be a highly focused niche brand."

Hummer and Saab, both of which are typically sold through stand-alone dealerships, "are subject to ‘strategic reviews', including their potential sale."

The company plans to make a final decision on whether to sell or eliminate Hummer by the end of March. The Financial Times notes, "GM said that it was still talking to some potential buyers but that, if these negotiations come to naught, the brand will be phased out. Hummer's US sales have plummeted in recent years, but GM has found sizeable markets abroad, including in the Middle East and Russia."

GM is reportedly in negotiations with the Swedish government about the future of Saab. CNN Money reports that GM "said Tuesday its Saab subsidiary could be forced to file for reorganization as early as this month if the U.S. auto maker and the Swedish government can't come to terms on financial support for the unit. GM, as part of a revamped restructuring plan presented to the federal government to qualify for billions of dollars in government aid, said that it has proposed to effectively cap its financial support for Saab, with the Swedish brand becoming an independent entity by the start of 2010."

In both cases, GM hopes to find a buyer for the brands or spin them off into separate companies because closing the brands outright could be much more expensive. Franchise agreements would require GM to buy out Saab and Hummer dealers individually would could cost the company billions. The New York Times notes, "G.M. found out last decade just how expensive it could be to unwind a brand. It spent more than $1 billion to buy out dealers at Oldsmobile, which built its last cars in 2004."

The Saturn brand, meanwhile, will be gradually phased out of existence because that brand's dealerships "have different, easier to cut franchise agreements than other GM brands," according to Motor Trend. GM plans to continue selling the models currently on Saturn dealership lots, but will build no new Saturn models. =

The restructuring plan says that Saturn "will remain in operation through the end of the planned lifecycle for all Saturn products (2010-2011). In the interim, should Saturn retailers as a group or other investors present a plan that would allow a spin off or sale" of the brand, "GM would be open to any such possibility. If a spin off or sale does not occur, it is GM‘s intention to phase out the Saturn brand at the end of the current product lifecycle."

"Dealers will stay open through 2011, but product development overall will cease," according to Kicking Tires. That means 2010 and 2011 Saturn models will just be newly minted versions of what's already available, and they may or may not receive minor updates, like added safety features."

Pontiac, meanwhile, will be reduced to a small brand selling a handful of models though combined Buick/GMC/Pontiac dealerships. The plan does not address which specific Pontiac vehicles will survive, but industry analysts expect to see the brand become a source of performance-oriented cars like the rear-wheel-drive G8 sedan, which cost GM little to develop because they are based on GM models sold in other markets.

The impact of GM's plan on consumers is an evolving story. In the short term, if you're in the market for a new car and interested in something from one of the doomed brands, you should be aware that prices for the vehicles may crash now that their execution is inevitable.

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