GM living large

DETROIT — General Motors is using two of its longest-running nameplates, the Chevrolet Suburban and Tahoe, to help lay the foundation for its electric future.

That doesn't mean it's making the big SUVs electric — yet. For the latest redesign of the Suburban and Tahoe, GM stuck with a tried-and-true formula, packing the vehicles with more technology and carving out significantly more interior space in the hopes of protecting its market share in the one major segment that the automaker still dominates.

GM's ability to maintain its 54 percent share of the full-size, nonluxury SUV category is critical to generating the profits needed to fulfill the big promises it's making.

"Over the next number of years ... we will eventually electrify the entire portfolio," Barry Engle, president of GM North America, said in an interview last week. "Each of the segments ultimately will be electrified."

As of today, consumers haven't bought into GM's confidence in an EV future. Battery-electric vehicle sales by all manufacturers make up only 1.7 percent of the U.S. market this year, according to J.D. Power sales data, vs. 1.6 percent for the full-size SUVs sold by GM's Chevy, GMC and Cadillac brands alone.

The revenue those SUVs generate for GM is significant, while its electric vehicle investments are still years away from contributing much to the bottom line. As automakers make such investments, "every bit of revenue becomes even more important," said Stephanie Brinley, principal automotive analyst at IHS Markit.

Most automakers have developed two product streams: "One that's going to expect to pay off in five, 10, 15, 20 years and one that needs to pay off now," Brinley said. "The full-size SUVs definitely need to bring in revenue and profitability in that near term."

The 2021 Tahoe and Suburban are slated to go on sale in mid-2020. Redesigns of the GMC Yukon and Yukon XL and the Cadillac Escalade and Escalade ESV also are due next year.

Meanwhile, in just the past two months, GM has announced investments of more than $4 billion toward EV manufacturing, including a joint venture with South Korean battery-maker LG Chem in Ohio. Last week, Cadillac President Steve Carlisle said that by 2030, the majority of the luxury brand's lineup will be BEVs.

Barclays estimates that large pickups and SUVs — with profit margins as high as 30 percent, or more than $15,000 each — accounted for 72 percent of GM's profit in North America last year.

"That's what consumer tastes are here in North America. People love those large vehicles," said Brian Collie, senior partner and managing director at Boston Consulting Group.

GM is among the many automakers investing heavily in the EV era to come, but "right now, you have very rational executives who are making vehicles that meet the needs of consumers and for which they can make a heck of a lot of money," Collie said.

Both the Suburban and Tahoe have had staying power. The Tahoe has been in the market for 25 years, and the Suburban, at 85, is the industry's oldest nameplate. Since 2016, Chevy has sold around 100,000 Tahoes and 60,000 Suburbans in the U.S. annually. Sales peaked at 209,767 for the Tahoe in 2002 and 154,782 for the Suburban in 2001, according to the Automotive News Data Center.

"The Suburban and Tahoe are iconic products. We're very proud of them, of what they've achieved in the marketplace," GM CEO Mary Barra told reporters last week. "This really is taking it to the next level."

Including luxury vehicles, GM accounts for 47 percent of the full-size SUV market. But it faces growing competition.

Ford Motor Co. redesigned its Expedition and Lincoln Navigator two years ago. Expedition sales are up 53 percent this year through the third quarter, cutting the Tahoe's advantage over it in half. And the Jeep Grand Wagoneer is due to begin production late next year.

In redesigning the Suburban and Tahoe, Chevy added an independent rear suspension to create more interior space and better compete with Ford, which made that change to the Expedition almost two decades ago. Chevy also is offering two segment-first options, Air Ride Adaptive Suspension system and Magnetic Ride Control, to improve how the vehicles drive even as their footprint grows for 2021.

"The addition of the independent rear suspension and the space that that opened up, I think that that gives them a good advantage in the market," said Paul Waatti, an analyst at AutoPacific.

Acing this segment is vital for GM, especially as Chevy pickups lose share to Ram. Brinley expects GM to continue to lead the full-size SUV segment, but rivals still could steal market share that GM can't afford to chase.

"They need to make sure they focus on the profitability of the vehicles rather than market share," she said. "If [market share] is your most important element, you put profitability at risk."

To avoid market share erosion, Chevy has to price the SUVs right, Waatti said.

Chevy has not released pricing details yet, but six trim levels — up from three today — will provide flexibility to offer a range of price points, so GM can get customers to pay more for a personalized feel.

"Today's customer wants to feel like they have a customized vehicle to their taste," Waatti said. "So offering a variety of trims that go from sporty to outdoorsy to everything in between, I think that that is key for them."

The SUVs' success also will depend on Chevy's launch and marketing strategy, said Michelle Krebs, executive analyst for Autotrader.

"There have been product introductions in the past couple of years [that] came out of the chute strong, but other new products came on the market. That newness wore off pretty quickly," Krebs said. "GM's got to make hay while the sun shines. The competition continues to come on strong."