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Supply and demand



Published: Sat, January 8, 2005 @ 12:00 a.m.



OR THE COBALT DESIGN and production team at Lordstown, it just seemed like the hard part was ramping up a new assembly line and shipping out the first salable cars.

But the next couple of months will be the real white-knuckle time: matching the huge pent-up expectation that Chevrolet has created for its new Cobalt compact during a New Year's advertising blitz with the ability to get enough cars to dealers.

Jim Sanfillippo, an automotive marketing analyst with AMCI in Bloomfield Hills, Mich., likens the launch of a new model to the classic football-kicking joust between Lucy and Charlie Brown.

The marketers want a ball to kick, but inevitably there are glitches in the timing and the ball is pulled out from under them at the last minute.

"This is one of the oldest problems in the auto business -- timing the marketing and production of a launch," Sanfillippo said. "It's very hard to get right."

While there has been some advertising of the Cobalt since late summer, the big blitz seen last weekend is ideally timed "to where the dealerships are full and the shipping inventory is adequate."

Since production of salable Cobalts began in September, the pace of the ramp up of production has been a touchy subject. The Cavalier was not noted for its fit and finish, and the Cobalt is designed with far smaller tolerances and far higher quality standards than the Cavalier.

So while Lordstown plant spokesman Tom Mock claims there are no hard and fast deadlines, early problems with sheet metal fitting and a headlight recall have slowed the initial manufacturing at Lordstown, where three shifts a day have been pushing Cobalts off the line since September.

Mock said that since returning from the Christmas holiday, the plant is up to about 1,000 cars per day. That's a little below the goal of 1,200, but far better than the average in December, when just 13,668 Cobalts were shipped out.

Supply side

The car business tries to keep roughly a 60-day inventory on the market. Mock said that was about 40,000 units for the Cavalier. While it's too early in the cycle to set a number for the Cobalt, eventually that number would have to be around 40,000 for the Cobalt to be a success, analysts agree.

As of Dec. 31, Lordstown made just under 26,000 Cobalts. And the unsold inventory numbered just 6,000, says automotive stock analyst David Healy of the Burnham Financial Group in New York.

While recent upticks in production will close that gap, the real issue for Sanfillippo is what Chevy is touting in their ads: the top-of-the-line SS Supercharged Coupe, the "little brother" of the classic Corvette.

Production of those cars -- once talked about for mid-December -- isn't even scheduled to begin until mid-February, Mock said. And just now, the regular two-door coupe is starting to be shipped in reasonable numbers.

"Some manufacturers do this, trying to build traffic around the fanciest 'halo' model that may not be available yet," Sanfillippo said. "While it may be common, I don't think it is good."

The brain behind the Cobalt marketing campaign disagrees. Mollie Peck of GM uses her own analogy, the timing of the marketing campaign is like a golf shot. And she says the goal is to hit "the sweet spot."

"You've got to have enough distributed to dealers so that people find something to see, but not so much inventory that they are sitting on the lot," Peck said.

New name

The marketing of the Cobalt was complicated in that is was a totally new car built to a new standard, she said. Some early name-recognition ad spots were broadcast in August, followed by a broader brand-building campaign in early December.

Was the production where you thought it would be when the long-planned New Year's blitz was launched?

Peck said a decision was made in December to postpone the production of the SS coupe in favor of getting enough of the standard coupes in the pipeline. But GM still hit the sweet spot, she said. "It's better to be a little early than a little late."

Ultimately, while Peck made a conscious decision to build the blitz around the sizzle of the SS, it won't be big seller and it was more important to have some of the standard coupe's available.

Timing aside, Sanfillippo said the campaign itself is extremely well done, and the Cobalt is crucial to Chevy's strategy of building a reputation of quality engineering and manufacturing.

"The delays in production show a certain level of confidence at Lordstown," he said. "They're transitioning to the new religion of zero defects. In the '70s, they would have just said 'ship it.' They aren't willing to do that, and that's good."

Showroom floor

How does this play out on the showroom floor? There is a lot riding on the Cobalt rollout for dealers. The venerable Cavalier inventory, which ended production just weeks before the Cobalt ramped up, is down to just 28,000 cars.

So for some dealers, that means they are temporarily out of the compact car game, where dealers bring in entry-level car buyers, at least those looking for something more than the utilitarian Aveo. Some dealers say this is business as usual, but others say they want more product to sell.

"We think its a going to be a great car to sell," said Terry Poulton, owner of Stadium GM Superstore in Salem. "Unfortunately, I have but two in stock. And they're basic four-door models."

What irks Poulton more is that Chevy's New Year's advertising gave a lot of screen time to the sexy, SS Supercharged Coupe.

"If I had 50 on my lot, they would be sold," Poulton said, adding he would have preferred that the advertising blitz wait until he had the cars to sell.

But A.J. Saculla at Greenwood Chevrolet said he has plenty of sedans to sell and has 30 coupes scheduled to be shipped.

Greenwood advertised itself as the Cavalier capital of America and is anxious to get the ball rolling with the replacement Cobalt. "We've created a lot of expectation, and we can't wait to get them," he said.

While some people have asked for an SS or a coupe, they will wait for the car they want, Saculla said. "This is nothing out of the ordinary."

Dealers contacted across the country pretty much agreed with John Brooks, inventory manager of Banner Chevrolet in New Orleans. "We have enough right now, but we always want more," he said.

Positive reviews

The good news for Chevy is that the early reviews of the Cobalt have been positive. While the dowdy Cavalier is 23 years old and harped upon by automotive writers as a low-tech relic, even in its last year of production it was the third biggest seller in its class, behind the Corolla and Ford Focus.

So Chevy needs Cavalier's volume even while it has higher aspirations to be a leader of the premium compact sub-segment against fully loaded versions of the Corolla and Civic as well as the Mazda 3 and the Volkswagen Jetta.

On the other hand, the Cobalt wants to get the reputation for quality and value that have made the imports so strong in the compact sector. That may allow the sedan to take on the higher-end premium compacts such as the Subaru Imprezna and the coupe to rival the Accura RSX Type-S.

Pulling in some additional market share in the higher-end, higher-priced end of the compact spectrum may make the Cobalt a lot more of a financial success than the Cavalier.

"GM doesn't like to talk about profit per model, but they lost a lot of money on the Cavalier," analyst Healy said. "If things work out, they'll lose a lot less on the Cobalt."

The big problem for American carmakers in the compact sector is labor costs vs. Japanese and Korean imports. But the low end of the market is price sensitive, so Chevy is forced to keep prices low.

Healy said even if it loses money, the Cobalt is an important part of Chevy's overall strategy. It brings to the lot first-time buyers who will trade up to bigger Chevys if they like their Cobalts. And U.S. Environmental Protection Agency requirements that car manufactures achieve a certain average miles per gallon virtually requires a carmaker to produce small cars to off-set the gas guzzling SUVs and pickups that produce high profits, Healy said.

"Hopefully they have learned from the Cavalier how to be more efficient with their costs, especially labor costs," Healy said.




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