Cashing in on the Hummer
When Jerome York, the influential aide to investor John Kerkorian, gave his ballyhooed speech in January with its detailed plan to fix General Motors (GM), there was one bit of advice in an otherwise sagacious presentation that didn't make much sense to me. He said GM should sell off Hummer.
True, Hummer is an uber SUV brand at a time when up-and-down gas prices make them a risky bet, both for consumers and the companies that build them. And while Toyota (TM) forges ahead as the innovation leader by selling hybrid-electric vehicles, Hummer's rough-and-tumble image doesn't exactly scream high-tech.
But the marque does have some real value to GM. For starters, the brand has traditionally attracted the sort of buyers that have otherwise eluded GM. Hummer reaches about 60,000 buyers, about 60% of whom never shopped for GM brands before. And about one-third of buyers are women. Also, Hummer attracts GM's youngest buyers, with an average age of 44. And the brand is profitable to boot. The new H3, which costs $35,000, is a hit.
So why sell? York, a former Chrysler (DCX) and IBM (IBM) CFO, said there is no evidence that Hummer buyers return to buy another GM vehicle. He also said it is a distraction to management and a diversion for cash that GM badly needs to conserve. And hey, why not unload the marque when it's hot and get a good price?
But there is another problem with Hummer -- one York may not even be aware of. At the moment, GM has almost no new Hummer models in the pipeline for the rest of the decade, according to sources inside the company. There's the H3T -- a pickup version of the H3 -- but the H2 pickup didn't do much for sales. And speaking of the H2, one GM exec told me it won't get a facelift until 2010. Says the exec: "When it comes to spending money, we just have too many other problems that need to be fixed."
This sounds like the Saturn treatment. Back in the early 1990s, Saturn had just hit the market and was luring all kinds of people who hadn't set foot in a Chevrolet dealership since Don McLean had a hit song. But GM let Saturn fizzle, with no new cars of any significance, until about 2001. Now GM is hoping that a new roadster and family sedan, due out later this year, will resurrect the brand.
There could be one new Hummer in the works. A couple years ago, GM designers created the HX, which was described to me as a Jeep Wrangler on steroids, or even a Wrangler with some sports car in its lineage. Hummer General Manager Susan Docherty (who leaves the job at the end of the month for a promotion into GM's sales ranks) admitted at a lunch in December that she wishes the HX had survived budget cuts. Some sources say a new small Hummer is in the works and could arrive in about four years.
Dealers hope that's the case. To get a Hummer franchise, many of them had to stump up as much as $10 million to build showrooms -- which include a specially-built Quonset hut and often have dirt tracks out back. They will need fresh new models to sell if they are to get a nice return on that investment.
FASHION FAUX PAS?
More to the point, Hummer isn't the kind of brand that can lumber along without something new. It's not Ralph Lauren's Polo, which sells the same shirts to the same conservo buyers year-in, year-out. Hummer is a fashion brand that needs constant freshening. Just look at the H2. It was the hottest vehicle on the U.S. when it hit showrooms in 2002. But less than a year later sales cooled.
GM needs to keep feeding Hummer. Without the HX, or some other addition to the Hummer lineup, GM could find itself a few years from now with another brand that needs to be polished up. If GM can't afford to give the brand what it needs to thrive, maybe it should take York's advice.