CLEVELAND, Ohio — Breaking with its past, General Motors is trying an uncharacteristically risky strategy for bringing to market its new small car, the Cruze.
If the gamble doesn’t pay off, Chevrolet dealers and GM’s Lordstown complex, where the Cruze is to be built, could be the losers.
Lordstown now builds the Chevy Cobalt small car, which the Cruze will replace. Cobalt production ends this month, but workers won’t start building the Cruze until July, with sales starting in September.
At the rate Cobalts have been selling, dealers might not have enough to last until August — leaving a gap of a month or more when Chevrolet could have no small car to offer shoppers.
GM officials have said that the Cruze needs to be a big hit. The automaker committed to adding at third shift at Lordstown this summer to support a quick launch of the new vehicle.
By letting its Cobalt inventory dwindle while committing to a three-shift launch of the Cruze, GM is “working without a net,” said Erich Merkle, president of the consulting firm Media in Grand Rapids, Mich.
Any production problems with the Cruze could mean an even longer period when dealers would have no car to sell in the highly competitive compact market. And if the Cruze doesn’t catch on quickly with consumers, that third shift at Lordstown could end up getting laid off.
Cruze vs. Cobalt
General Motors is ending production of the Chevrolet Cobalt this month as it prepares to start building its new small car, the Chevrolet Cruze. The base Cruze, which goes on sale in September, will cost $2,000 more than the Cobalt. Here’s what you get for the money:
Cobalt — $14,990
Cruze — $16,995
Cobalt — 2.2-liter, 155-horsepower four-cylinder
Cruze — 1.8-liter, 138-horsepower four-cylinder
Cobalt — Five-speed manual or four-speed automatic
Cruze — Six-speed manual or automatic
Cobalt — 24 mpg city, 33 highway for base model; 25 city, 37 highway for XFE model
Cruze — Testing is not complete, but GM says the Cruze Eco model, starting at $18,895, will get at least 40 mpg highway.
Cobalt — Four airbags
Cruze — Ten airbags, air-conditioning, stability control, power windows, power door locks
SOURCE: General Motors
GM has about 21,000 Cobalts on dealer lots and will make about 15,000 more before the Lordstown plant goes on its summer shutdown in a few weeks. The company sold more than 16,000 Cobalts last month, and with June and July traditionally being busy selling months, the last 36,000 could be gone in eight to 10 weeks.
And yes, GM has done that math.
“This is intentional,” said company spokeswoman Lesley Hettinger. “It’s to provide us with a window of time to sell down the existing Cobalts.”
Having a production gap between an outgoing vehicle and its replacement is fairly typical. But automakers generally build up big inventories of the old car to keep dealers stocked through the replacement process. With the Cobalt, though, GM has been cutting inventories, creating the likely summer shortage.
The lack of a Cobalt inventory buildup is a strategic shift at GM, said Merkle of Media When GM redesigned the Chevrolet Malibu for the 2004 and 2008 model years, the company not only built up inventories of the older models, it continued to build and sell them to rental car companies as the Malibu Classic after the new Malibu debuted.
“They’re doing things very differently now,” Merkle said. “The Malibu launch was more of the old GM. They’re really a different company now.”
The prospect of temporarily being without a small car to sell doesn’t seem to bother dealers much.
GM has been learning from its competitors, who often have big gaps between ending one vehicle line and replacing it with another, said Mark Sims, president of Sims Chevrolet in Lyndhurst.
“GM has been enamored with every aspect of how Toyota operates, and this is how Toyota does it,” Sims said. He added that for dealers, it’s best to have one option for customers because too many choices can confuse them.
The Cobalt’s main selling point is that it is the least expensive car in its class, said Patrick O’Brien, general manager of Pat O’Brien Chevrolet in Westlake. The Cruze promises to be a better car, able to compete with the Honda Civic, Toyota Corolla and Ford Focus on features and performance.
But GM’s pricing strategy for the Cruze also is risky. The automaker said today that the Cruze would start at about $17,000. That’s roughly $2,000 more than the Cobalt and hundreds more than the base models of any of its major competitors.
Merkle said the higher price may surprise some shoppers, but it covers many popular features that are optional on the Cruze’s competitors.
That won’t matter if dealers don’t have enough models for potential customers to test drive and buy. If production problems arise and Chevy dealers have no Cruzes on the lot, shoppers might go test-drive the competition, Merkle said.
He added, however, “I’m not all that worried about that happening.”
The Cruze has been in production in Europe and Asia for more than a year, so most of the problems typical of new vehicle launches have already been worked out, Merkle said.
Dealers say facing a small risk that glitches could delay Cruze deliveries is better than the alternative: having the Cobalt and the Cruze on their lots at the same time.
The less-refined Cobalt is “not going to be able to compete against the Cruze,” O’Brien said. “We don’t want to have any Cobalts left when the Cruze comes out.”
Still, O’Brien and other dealers said they’ve been stocking up on used Cobalts to help get them satisfy small-car shoppers during the transition period. And once the Cruze starts to roll off the assembly line, supply shouldn’t be an issue.
When Chevrolet launched its redesigned Chevrolet Equinox last year, the crossover dribbled out to dealers one or two at a time, said Chuck Keim, sales manager of Doug Chevrolet in Akron.
The Cruze launch, he said, will be different. With three shifts on the job in Lordstown, “They’ll end up shipping this one out in droves.”