Last summer, the Hummer H2 was the hottest thing on four wheels. Buyers eager to get the hulking, militaristic sport-utility vehicle waited months to take delivery and even paid dealers as much as $10,000 on top of the $48,000 sticker price. With profits topping $20,000 per H2, General Motors Corp. (GM ) looked downright clairvoyant for buying the Hummer brand from military contractor AM General Corp. in late 1999. The H2 was a bona fide hit.
Not anymore. Now it looks as if the big beast is starting to lose momentum just as GM is set to start production on its equally pricey pickup version, the H2 SUT, which is due out in June. Plagued by complaints about its abominable fuel economy, cheap interiors, and tiny cabin, the H2 saw sales tumble 33% in January over the previous year, the fifth straight month of declines. In October, GM even cut production. "Selling a Hummer was the easiest job in America," says Los Angeles dealer Howard Drake. "Now it's way harder."
Has Hummer lost its mojo? Not yet, but GM has its work cut out for it. Once on track to sell 40,000 units a year, the auto maker looks headed to move just 30,000 this year. Inventory has risen to 68 days' worth of vehicles -- about average for the industry, but almost triple what dealers carried a year ago. GM is counting heavily on the launch of the smaller, $28,000 to $35,000 H3 next year to boost annual sales to 100,000. To get there, the H3 -- which debuted as a pickup concept in December at the Los Angeles auto show but will appear in '05 as an SUV -- will have to trade on more than combat-truck styling and a macho image.
$50 EVERY 320 MILES. Taking the Hummer mainstream won't be easy. Even when sales were hot, customers had complaints. In a J.D. Power & Associates Initial Quality Survey taken last year, the H2 ranked near the bottom. The biggest gripe: While no one bought a Hummer for the sake of its thrifty gas mileage, its 11 to 13 miles per gallon was even worse than expected. Brian Walters, senior director of vehicle research for J.D. Power, said the firm spoke to owners who bought their Hummers in the fall of 2002. By the time the survey was taken in March, 2003, gas prices had spiked to $1.70 per gallon, forcing H2 owners to shell out more than $50 every 320 miles.
STUCK FOR SPACE. The Hummer's lack of creature comforts is another problem. In a Power study of vehicle appeal conducted last fall, the H2 ranked slightly below average among luxury SUVs. Owners dinged it for having poor rear-window visibility, cheap workmanship inside, and scarce passenger and cargo space. The H2 seats five comfortably, but fitting in a sixth person means squeezing into a jump seat next to the spare tire. And that takes up all of the storage space. Competing luxury SUVs such as the Range Rover, Lincoln Navigator, and Cadillac Escalade are nicer inside and usually have more room.
That's why, for GM, making future Hummers more practical is key. Hummer marketing director Michael C. DiGiovanni says the H2's interior will get a little sprucing up when the SUT comes out, and the H3 will be more plush, too. To improve gas mileage, next year's H3 will use a five-cylinder engine rather than a V8 -- though that will mean less power. As for the gas-guzzling H2, GM may around 2008 have in place a hybrid-electric system and a technology called displacement-on-demand, which saves gas by shutting down four of the engine's eight cylinders when it's cruising at highway speeds.
With sales falling, a year is a long time to wait for the new H3. In the meantime, DiGiovanni is hoping the H2 SUT will provide a lift; the pickup version may seem smaller and a little less menacing to buyers turned off by the size of the H2 SUV. Then with the H3's rollout next year, GM is hoping to attract a whole new class of drivers, including those under 40 for whom the brand has special appeal. The trick will be to tame the Hummer without losing its rugged personality.
By David Welch in Detroit