Can A Tune Up Make Chevy A Contender?

You might think Jim Perkins would be sweating profusely. Chevrolet's general manager has watched sales wither at the huge General Motors Corp. division--while the rest of the industry has surged ahead at its fastest clip since 1987. Indeed, Chevy's 16.1% U.S. market share in June was down 2 percentage points from a year ago. Worse yet, the number has fallen steadily since 1990.

Far from being spooked, however, the smooth-talking Texas native is the most upbeat he has been since taking the helm in 1989. Three new high-volume models due in showrooms by yearend--the midsize Lumina, compact Cavalier, and Blazer compact sport-utility--should help reverse Chevy's slide and contribute much needed earnings. The new models "put us back in the thick of the battle," says Perkins, who predicts that Chevy will overtake archrival Ford to become again the best-selling brand in America.

BIG LIFT. Texas-size hyperbole? Perhaps. Competition in the heart of Chevy's markets is fiercer than ever, and the carmaker has been hurt by slow changeovers in key factories that are tooling up to build the new models (BW--July 11). Still, the new products, a fresh ad campaign, and aggressive pricing could boost Chevy's sales by 100,000 cars and light trucks and win back more than half a point of market share by the end of 1995, figures Christopher W. Cedergren, an analyst with AutoPacific Group Inc. in Santa Ana, Calif. And Perkins says that's just the start of a comeback.

That would be a big lift for parent GM. Chevy alone still sells more vehicles than Chrysler Corp., the world's No.6 carmaker. And Chevy must be strong if GM is going to continue turning around its struggling North American operation, which is edging into the black after years of losses. The revamped 1995 Lumina may bring in $3,700 in gross profits per vehicle, says Lehman Brothers Inc. analyst Joseph S. Phillippi. The old model, which was costly to build and required rebates and other incentives, lost up to $2,000 apiece. At 250,000 cars a year, that difference translates to as much as a $1.4 billion swing in GM's gross profits.

Chevy's new iron could finally make the division competitive in crucial, high-volume segments. Through much of the late 1980s, Chevy's new-model programs were delayed as parent GM diverted cash to other divisions. That changed a couple of years ago. While the 1995 Lumina won't win any styling awards, it finally gets dual air bags--belatedly matching the competition. That addition alone might add 60,000 annual sales to corporate fleets, which require them. The Blazer's tuned-up interior and smoother ride should attract more of the well-heeled suburbanites who have been snapping up Jeep Grand Cherokees and Ford Explorers. And the entry-level Cavalier gets a zippier engine and its first major face-lift in 10 years, both essential for luring more of the younger buyers Chevy desperately needs.

Perhaps these cars' most attractive feature will be their price. Perkins has added new equipment while trying to avoid sticker shock. Take the Lumina: The base car, with new standard air bags, starts at $15,995--or just $365 more than the 1994 model. And all Chevy prices include the $500 shipping fee, which competitors tack on later.

NOISY MESSAGE. Chevy can make a profit at such aggressive prices because the new models cost less to manufacture. The 1995 Lumina has 900 fewer parts than its predecessor and takes 30% less labor to assemble. Such efficiency was achieved partly by making many popular features standard equipment so workers build fewer complicated variations. Chevy officials figure a $16,500 Lumina with a few options such as air conditioning will account for 65% of the model's sales.

Consumers will be deluged with Chevy's "value pricing" message. Ads touting specific models will begin in August, and with Chevy's mammoth $600 million annual budget, they'll make plenty of noise. Moreover, Chevy will lend Luminas to 100 families for a week, give them video cameras, and ask them to record their impressions. Some of the footage may show up in future TV spots.

Revamped products aside, Perkins still faces some rough going. "We haven't won any wars," he concedes. GM's factories have been painfully slow at cranking out the new models: The Oshawa (Ont.) factory that has produced Luminas since Feb. 14 still isn't up to full speed. Dealers are screaming, but Perkins says the factories will remain focused on quality, not volume.

Chevy also faces intense competitive pressure. Nemesis Ford Motor Co. has a string of new products on the way. The popular Explorer gets a makeover this fall, and Ford's marketing gurus are eyeing a less-expensive, entry-level version--precisely the market Chevy targeted. The critically acclaimed Contour sedan, also due this fall, is slightly smaller than the Lumina but will compete on price. Next fall, Ford will unveil an all-new version of its best-selling Taurus sedan, and analysts who have seen it say the car should be a smash. "We don't plan to give up [leadership] without a hell of a fight," says Philip M. Novell, Ford's general sales manager.

PAMPERING. Low prices, meanwhile, may not be enough to pry buyers away from Japanese brands. Models such as the Honda Accord and Toyota Camry still have a more finished look and refined feel than Chevy's models. And aggressive lease deals have masked the roughly $2,000 price advantage of domestic carmakers.

Perhaps most daunting, Chevy must improve the way it treats customers. Hard-sell tactics are often still the rule at Chevy dealers, while other carmakers are trying a kinder, gentler approach. The division ranked below the industry average in the most recent customer-satisfaction survey by J.D. Power & Associates Inc., the Agoura Hills (Calif.) market-research company.

To boost Chevy's reputation, Perkins is adopting techniques pioneered by GM's Saturn Div., a satisfaction leader. To make customers feel pampered, he's trying to give service a more personal touch. When Chevy recalled 45,000 S-10 pickups recently to fix a potentially hazardous gas filler pipe, most customers were contacted personally by phone and offered loaners. The trucks were returned washed--and with a full tank of gas. A new dealers' training program to encourage less aggressive sales tactics, however, may lack the teeth to make it effective. Although rivals such as Chrysler use cash incentives to enforce such programs, Chevy's is strictly voluntary.

Even with those difficulties, Chevy seems back on track. Spiffed-up models already in showrooms--the Camaro and the S-10 pickup--are sellouts. Moreover, Chevy's 4,700 dealers give it marketing reach rivaled only by Ford. And if vehicle sales continue to grow next year, as most analysts expect, Perkins' biggest problem may be building enough cars and trucks to meet demand--not the 500,000 extra needed to catch Ford. The comeback can't start too soon, says Alan Spitzer, who owns three Chevy dealerships in Ohio: "They've got a lot `f recouping to do."

    Before it's here, it's on the Bloomberg Terminal.