Pontiac, Buick Brands to Shrink to Grow

General Motors Corp. is ratcheting down the number of models offered by its Buick and Pontiac brands as it combines the bulk of those retail outlets with GMC and looks to cut the market overlap between the three marques.

But longer term, Pontiac and Buick once again could get broader lineups, the auto maker’s top sales executive says.

In a presentation to securities analysts last week, Mark LaNeve, GM North America vice president-sales, service and marketing, says the auto maker’s much-maligned brand strategy is on track and heading in the right direction.

Widely criticized for having too many brands in North America, LaNeve again defends GM’s game plan, saying it ultimately will benefit from its broad portfolio once brand identities are sorted out.

He also says recent moves to bring in new ad agencies are designed to increase GM’s presence in key coastal markets and take marques such as Cadillac to its next stage of development.

LaNeve says GM has organized its eight North American brands into two basic groups and four distinct sales channels.

Considered “anchor brands” are the higher volume marques Chevrolet, GMC, Cadillac and Saturn. “Focus brands” include the more niche-targeted Buick, Pontiac, Hummer and Saab.

Chevrolet and Saturn operate as independent sales channels, while Pontiac, Buick and GMC account for a third channel and Cadillac, Hummer and Saab make up the fourth.

Much of the focus has been on the Buick and Pontiac brands, once dubbed “damaged” by global product chief Bob Lutz, and their merger into a single distribution channel with GMC.

LaNeve says GM is ahead of schedule in combining U.S. dealers of the three brands.

“As we sit here today, 65% of the (sales) volume is through dealerships that have all three brands,” he says. “We’re targeted to get to 80% by the end of 2007, and we’re slightly ahead of the internal track we have to get there.

“Then we’ll be at critical mass,” he adds.

The consolidation, LaNeve says, will allow GM to boost sales per dealer for the three brands, “an area we have to improve on.”

As for products for Buick and Pontiac, LaNeve said more than a year ago GM would pare offerings down to about four models for each brand.

But in elaborating on those plans to analysts, he now says he foresees a day when the lineups can be expanded once again.

“We got in trouble by crossing over products and brands in the middle of the market,” LaNeve says. “Pontiac and Buick now need to be rebuilt. The trick is to narrow the focus, and as we get the identity right, we can add product as we get better at utilizing our global platform strategy.

“In the case of Pontiac and Buick…we have to really tighten the brand, establish the brand. Then we can go from there.”

Pontiac, he says, already is well on its way to reconnecting with younger buyers through Internet and viral marketing and penetrating the import-dominated coastal markets.

“We kind of lost our way for a number of years,” he says. But GM now understands Pontiac is “as much about style as performance.

“Pontiac is a real success story this year,” LaNeve adds. “All sales trends are shifting up positively.”

Although overall Pontiac light-vehicle sales are down 4.4% through July and market share has dipped to 2.5%, the division points to a number of gains in recent months. These include July retail sales that were the highest for any month since August 2003, a 20% hike in dealer showroom traffic since Jan. 1, strong sales increases in key import markets such as Santa Barbara, CA, (up 24.3%) and Miami (13.1%) and improving demographics that include younger, more affluent buyers.

The gains have come despite lower incentives and tough comparisons to year-ago when GM ran its hugely successful employee-discount sales program, a Pontiac spokesman points out.

LaNeve also defends a move to switch ad agencies for Cadillac and break away from its “Break Through” advertising campaign that successfully revitalized the brand in 2002. In June, Cadillac announced it was moving its advertising business from long-time agency Leo Burnett to Boston-based Modernista!.

“With Cadillac, we have to have the courage to transition,” he says. “We need to build (buyer) aspirations and get in the heads of Lexus, BMW and Mercedes owners. Our new campaign is going to do that.”

He points to other agency linkups that are designed to improve brand penetration on the West and East coasts, such as its relationship with Deutsch Inc. in Los Angeles, which is working on selling GM’s quality message and capitalizing on its alignment with Major League Baseball and NASCAR, and youth-oriented Translation Consultation & Brand Imaging in New York, charged with making “Chevy cars cool again.”

LaNeve says GM’s pricing policy launched in second-half 2005, which relies less on incentives and more on sticker prices that are closer to actual transaction prices, is paying off in better residuals on its newer vehicles. GM says it reduced its incentives by $946 per unit in first-half 2006.

Citing Automotive Lease Guide projections for ’07 models leased for 36 months, LaNeve says the Chevrolet Cobalt coupe will return 44% of its original cost, compared with 47% for a Honda Civic coupe. The Pontiac G6 sedan (51%) is closing in on the Honda Accord (54%) and the Saturn Aura (51%) is close to the Camry (54%), he says.

The Cobalt return is 14 points higher than an ’05 Cavalier, while the G6 is 19 points better than an ’05 Grand Am and the Aura outdistances the ’05 L-Series by 15 points, he says. In the case of the Cobalt vs. the Cavalier, lower rental volume, better quality and a better overall product have contributed to the improvement, LaNeve says.

“We’re very proud of this,” he says of the improving residuals. “A big chunk is the result of significant (pricing) actions we took, but some of it is product.”

ALG President Raj Sundaram confirms GM brands noticeably have improved their residuals over the past 12 months.

“The gap is still big,” he says, “but the trend is encouraging.”

ALG says the industry average for residual value is 45.3%. Pontiac, GMC and Chevrolet top the charts in year-over-year improvement heading into the ’07 model year, but their scores are slightly above or just below average. And Buick, at 38.5%, remains well short of the industry average.

As GM gets ready to launch all-new fullsize pickups, there is concern over rising gas prices, but LaNeve also sees a “silver lining.”

“We’re well positioned vs. some of our competitors in terms of fuel economy, and we’re going to try to take advantage of that,” he says, alluding to plans to step up emphasis on fuel efficiency in its marketing.

LaNeve says during the past 90-120 days, as buyers began paying more attention to fuel economy, it boosted sales of such models as the Chevrolet Cobalt and HHR.

“It is benefiting us from the standpoint of market momentum,” he says. “Our best share performance has been May, June and July.”

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