Skip navigation

Death of Pontiac May Come Sooner Than Expected

If a silver lining to the division’s shutdown exists, it’s that it will happen relatively quickly. It took GM more than four years to wind down Oldsmobile earlier this decade, and important residual values plunged.

General Motors Corp. plans to phase out its Pontiac division by the end of 2010, but doubt exists whether the 83-year-old brand will last that long, especially if the auto maker fails to restructure outside of bankruptcy.

“If they end up in bankruptcy, I don’t know why in the world they would keep (Pontiac) to the end of 2010,” says Erich Merkle, an independent auto analyst in Grand Rapids, MI. “That’s the whole point of bankruptcy – take action more quickly on the things you could not outside of bankruptcy, such as shedding brands, lowering your labor costs and getting rid of dealers.”

GM appeared to be moving closer to a Chapter 11 filing Tuesday, with several top executive dumping their GM shares. The move prompted a market selloff, pushing the stock value to lows not seen since the Great Depression. Shares touched $1.00 earlier today.

Renewed talks with the United Auto Workers union are under way, GM President and CEO Fritz Henderson tells journalists at a media briefing earlier this week, and dealers GM must eliminate to right-size its distribution network will learn their fate in the coming days.

The auto maker also continues to negotiate with bidders on its Hummer, Saturn and Saab brands. Unless satisfactory deals can be reached, the company will wind down the divisions by year’s end.

However, Henderson says “no dialogue” exists for selling Pontiac. Yet, GM plans to keep it on life support for another 18 months, despite clear indications in recent weeks buyers are staying away from the auto maker’s lame-duck brands.

One dilemma GM faces with Pontiac is its sheer size. With 267,348 sales last year, Pontiac ranks as the auto maker’s No.3 division, behind the 1.8 million cars and trucks sold by Chevrolet and 376,996 deliveries at GMC, according to Ward’s data. For comparison, Saturn sold 188,004 vehicles last year, while Hummer accounted for 27,485 units and Saab 25,028.

Pontiac’s dealer network also dwarfs these brands. Ward’s data shows a Pontiac-brand logo at 2,580 locations nationwide as of mid-April. Nearly all of the franchises are part of a Buick-Pontiac-GMC channel.

In comparison, Saturn’s network includes some 400 stand-alone retailers, Hummer carries 150 franchises and Saab 220 locations. Only Chevrolet, with its 3,790 dealerships, has more locations than Pontiac.

John Wolkonowicz, a senior analyst with IHS Global Insight in Lexington, MA, says another reason Pontiac is the last to go is because GM’s decision to axe the division came several months after determining what other brands would be dumped. Therefore, phasing out the division will run into next year.

GM announced last June plans to sell the Hummer luxury SUV division after gasoline prices spiked to $4 a gallon, while decisions on Saturn and Saab were made public in its first viability plan submission to the government Dec. 2.

GM said in its initial submission it would scale Pontiac back to a niche division, but changed course to a full winding down of the brand in late April after both President Obama’s auto industry task force and the U.S. Treasury Dept. rejected the auto maker’s second viability plan.

“The other brands were in the plan, and Pontiac was not,” Wolkonowicz says. “The decision on Pontiac came after the government took control. These companies are no longer in control of their own destiny. With Chrysler (LLC), it’s a bankruptcy judge, and with GM it’s the auto task force and in all likelihood soon to be a bankruptcy judge, as well.”

Wolkonowicz offers one more reason to keep Pontiac into 2010 – the G6 midsize sedan, coupe and convertible. According to Ward’s data, GM sold 140,240 G6 models in last year’s weak market. “It still sells,” he says.

For comparison, the Saturn Aura midsize sedan, a onetime North American Car of the Year winner, accounted for 59,380 deliveries in 2008.

Local UAW contracts could also commit GM to continue building certain Pontiac products, such as the G6 in Orion Twp., MI. “The UAW may have something to say,” Merkle says.

But if a silver lining to Pontiac’s shutdown exists, it’s that it will happen relatively quickly. It took GM more than four years to wind down Oldsmobile earlier this decade, and important residual values plunged.

“(Oldsmobile) was a long, drawn out death by a thousand paper cuts,” says James Clark, editorial director at Automotive Lease Guide Inc., publisher of a twice-monthly analysis of residual values. “It was a tough situation, whereas with Pontiac, it will close more quickly.”

According to ALG, residual values, mostly leased, on ’04 Oldsmobile models were 75% less than the original base price when they were returned in 2007. “The analysis we are looking at right now on Pontiac suggests something more positive,” he says.

Clark says products such as the G8 sports sedan, Solstice roadster and coupe and Vibe compact hatchback likely will carry higher residuals than the G3 subcompact, G5 compact, G6 and Torrent small cross/utility vehicle.

“The second group is a little longer in the tooth, while the first group better reflects the Pontiac DNA as it was meant to be,” he says.

Residual values are important to both the auto maker and car buyer. Consumers want the most for their trade-in, and poor residual values could lead them to choose another brand with their next purchase or lease. Auto makers need residual values of leased vehicles to remain high so they don’t lose money when the car or truck is returned.

Poor residual values on returning truck leases last summer during the gasoline price run-up cost GM $2 billion in the year’s second quarter.

Mark LaNeve, vice-president, GM North America sales, service and marketing, says the auto maker does not plan to slash prices just so dealers can clear their lots of products from lame-duck brands. “I thought we already had some pretty good deals out there,” he tells Ward’s during a recent sales call. “We’re going to keep our dealers competitive.”

[email protected]

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish