GM makes big splash in small-car market

Posted on March 26, 2012

General Motors Co. looks to have a winning hand in the growing U.S. subcompact market: Sales of its Chevrolet Sonic are gaining market share, and the automaker is readying the launch of Chevy’s even smaller Spark minicar this summer.

Offerings from the domestic automakers in the U.S. subcompact market were once lackluster, but GM and Ford Motor Co. have begun building and selling the little cars that consumers want to buy: cars that are fuel-efficient, good-looking, full of must-have amenities and fun to drive.

The Sonic debuted in August and replaced the nondescript Chevy Aveo. It is built at Orion Assembly Center, which also builds the new Buick Verano luxury compact sedan.

GM sold 7,900 Sonics in February, the model’s best month yet; it snagged 14 percent of the subcompact segment, according to Kelley Blue Book. And GM spokesman Jim Cain said Sonic sales continue to strengthen. The Sonic finished second behind the Nissan Versa, which was redesigned for 2012.

Some dealers say they are having trouble getting enough Sonics to feed customers’ appetites. Buyers like the entry-level prices (sedans start at $13,865; hatchbacks at $14,765), sporty looks and fuel economy as high as 40 mpg highway, dealers say.

Ken Ross, owner of Team Chevrolet Cadillac in Vallejo, Calif., said Sonic sales have been in the single digits each month, but he could sell more if he had them. “We’re selling what we’re getting, but we’re not getting very much,” he said.

Kool Chevrolet in Grand Rapids also wants more Sonics on its lot. “They’re selling as fast as I can get ’em,” said Tom Baker, sales manager for Kool Chevrolet, which is selling six to seven Sonics a month.

Chevy has about 3,000 U.S. dealers, and spokeswoman Cristi Vazquez said GM is shipping Sonics to them as fast as they’re made. The Sonic is running at a 50-day supply, which is slightly tight for passenger cars, experts say.

“We’re in sort of a good place right now where we’re selling every one we build,” Vazquez said.

The Sonic constitutes about two-thirds of the current volume coming off the Orion assembly line. The plant is operating two 10-hour shifts, four days a week; it turns out 825 vehicles a day between the Sonic and Verano.

There has been discussion of adding a third shift at the plant, but several GM officials said increasing production would depend on several factors and whether demand is tied to fuel prices or seasonality. The plant runs periodic overtime, said Orion spokesman Kevin Nadrowski.

“They have talked about it (a third shift) down the road, and they want to see how the demand for the cars is going to be,” said Orion team leader Jose Rivera, 41, of Pontiac.

Model luring new buyers

The Sonic is bringing GM some newer and younger buyers. Forty-four percent are new to the brand, according to GM.

“We’ve got all the game in this segment,” Alan Batey, Chevrolet vice president of sales and service, said during GM’s March sales call. “We’re seeing some Japanese business come our way. The vehicle is very, very strong right now.”

Sales in the U.S. subcompact market grew nearly 13.4 percent in 2011 over 2010, as buyers flocked to new models, according to Alec Gutierrez, senior market analyst for Kelley Blue Book.

Gutierrez expects GM could sell as many as 8,500 to 9,000 Sonics this month, but expects sales volume ultimately will level off at around 4,500 to 5,000 a month.

“Right now, sales are a little bit elevated because of gas prices,” he said.

The class has several competitive offerings such as Nissan’s Versa and the Ford Fiesta, Gutierrez said. He expects the Sonic to remain in the top five.

While GM has offered subcompacts domestically, historically it’s played second seat to import brands, said Aaron Bragman, a senior analyst with IHS Automotive.

“The Sonic is really one of the first truly competitive offerings GM has ever (had) in the small-car segment,” he said.

It’s the first subcompact GM has built in the U.S. And thanks to GM’s labor agreement with the United Auto Workers, it can build a subcompact profitably in the U.S., Bragman said.

How much the subcompact market will grow, likely will depend on fuel prices, Bragman said.

“I think Sonic really has room to grow, because if you look at its predecessor, (the Sonic) is so much better,” he said.

More than half of Aveos were sold to fleets, such as car rental companies. But about 80 percent of Sonic sales are to retail customers, according to GM.

GM also is able to sell Sonics at a higher price than it charged for the Aveo. The average transaction price of the Aveo was about $12,500; the average price of the Sonic is about $16,700, GM’s Cain said.

“It’s getting more customers, younger customers, customers who are willing to pay more for quality small car,” Cain said. “It’s holding its value.”

Spark even smaller

The Spark, smaller than the Sonic, will be a commuter or city car. Gutierrez estimates GM may sell 500 to 1,000 a month in the U.S.

Pricing hasn’t been announced, but is expected to be below the Sonic’s base.

Analysts don’t expect Chevy Spark sales to cannibalize Sonic sales.

Ross, the California Chevy dealer, thinks the Spark will fare well in his area, where a lot of “young techies” live, and where gas last week was selling for $4.69 a gallon.

Plus, he said the new vehicle will give him a leg up on the competition. He’s located next to a Scion dealer.

“(It will) really give us an opportunity to go head-to-head with them and take some market share from them,” he said.

Melissa Burden, Detroit Free Press