DETROIT -- How do you make more profit while selling fewer vehicles? By controlling inventory and squeezing more revenue out of each transaction.
General Motors is capping production of the Chevrolet Impala sedan at 250,000 units for sale in the United States and Canada this year, a knowledgeable source says. That means GM is sacrificing about 60,000 sales of its best-selling car. GM also will emphasize higher trim levels to increase transaction prices.
The automaker is trading unit volume for what it expects will be higher transaction prices, lower incentives and higher residual values. One key goal: Cut fleet sales of the Impala, which hit 50 percent of total Impala sales last year.
GM also will cut costs by cutting the third shift at the Oshawa, Ontario, plant where the Impala is assembled.
GM is adjusting production on other good sellers to manage inventory and extract more revenue out of each transaction. The source says GM will hold production of the Chevrolet HHR at 120,000 units rather than add capacity to build more of the popular sport wagon.
By contrast, GM is increasing production of higher-priced versions of the so-far-successful new Tahoe large SUV.
Sale prices rise
GM's is seeing higher transaction prices for the new Impala, which came out last fall, and the new Tahoe.
According to J.D. Power and Associates' Power Information Network, the 2006 Impala's average transaction price last month was $22,082, compared with the 2005 model's average transaction of $20,387 a year earlier. (See box.) The base Impala starts at $20,990, including shipping. The top Impala model starts at $26,990.
The 2007 Tahoe's average transaction price in February was $41,233, compared with the 2006 model's average transaction price last February of $34,546, according to the PIN data.
The 2007 Tahoe's average turn rate is 13 days, compared with 94 days for the 2006 model. The top-line model Tahoe has a sticker price at $38,990, including shipping.
U.S. Tahoe sales for the first two months of 2006 were 28,524, up 49.8 percent from the year-ago period, according to the Automotive News Data Center.
Chevrolet General Manager Ed Peper says demand is strong for the high-trim versions of the Tahoe, prompting GM to build more 3LT and LTZ models.
Chevrolet executives monitor dealers' orders daily and make production adjustments, Peper says. One surprise, he says, has been sales of the high-trim Impala SS models with V-8 engines, which the old model didn't have.
In 2004 GM built 296,594 Impala sedans, and last year built 258,524 as it phased out the old version and ramped up to build the new one. GM sold 311,135 Impalas in the United States and Canada in 2004, the last full year of production of the old model.
GM could easily sell 300,000 Impalas this year, the source estimates. But GM is set to cut a third shift sometime this year at the Oshawa plant. GM added the shift in June 2002.
GM would have to keep that shift if it were to build the maximum capacity, the source says.
Peper would not comment on the shift. But he says GM wants to limit fleet sales and increase retail sales to bolster residual values.
Last year, fleet sales were slightly more than 50 percent of Impala sales, says a source familiar with the data who asked to not be identified. Those data include 2005 and 2006 models. Fleet sales of a key competitor, the Toyota Camry, were less than 10 percent of overall 2005 sales, the source said.
According to figures from Automotive Lease Guide in Santa Barbara, Calif., the 36-month residual on the 2006 base Impala LS is 42 percent. That jumps to 44 percent on the LT model with the 3.8-liter V-6 and 45 percent on the high-trim SS model.
The 36-month residual on the base Camry is 49 percent, and it's 51 percent on the top-line Camry XLE V-6, according to Automotive Lease Guide.
At the end of last year, Chevrolet increased production of the HHR and will boost it again this year, Peper says. He declined to give a specific number. But a knowledgeable source says that after "several capacity adjustments," GM plans to build about 120,000 HHRs this model year.
"That's max without building additional capacity," the source adds.
Chevrolet launched the HHR last June and sold 41,011 of the sport wagons in 2005. During the first two months of this year Chevrolet sold 16,610, according to the Automotive News Data Center.
Managing Tahoe production is complicated by the fact that it is part of a group of full-sized SUVs coming out of the Janesville, Wis.; Arlington, Texas; and Silao, Mexico, assembly plants. That means that any changes to Tahoe production must take into account the coming launches of the Chevrolet Suburban SUV, due in late April, and the Avalanche pickup, due this summer.
Other full-sized SUVs built in those plants are the GMC Yukon and Yukon XL and the Cadillac Escalade, Escalade EXT and Escalade ESV.
In 2005, according to the Automotive News Data Center, GM built 495,201 trucks at all three plants combined, on two shifts.
You may e-mail Jamie LaReau at [email protected]