DETROIT (June 11, 2008) — Hummer's rapid descent from hot to not is an automotive tale for our times.
As recently as 2006 the truck was still seen by many consumers as a fun—even cool—ride, making regular appearances in Hollywood (notably on HBO's “Entourage”) and at big sporting and red-carpet events. It was also a sales success story for owner General Motors Corp. (GM)
But in today's atmosphere of spiraling gas prices and companies bent on going “green,” the Hummer has become an economic, environmental and brand liability for the auto maker—a fact not lost on GM Chairman-CEO Rick Wagoner, who looks like he wants the off-roader off the books.
Mr. Wagoner dropped that bomb at the auto giant's annual meeting last week. “At this point, we are considering all options, from a complete revamp of the product lineup to partial or complete sale of the brand,” he said.
The statement came just five weeks after GM Chief Financial Officer Ray Young said the auto maker had no intention of pruning any of its eight vehicle brands in North America, demonstrating just how dramatic the swing toward smaller, fuel-efficient vehicles has become. Experts have called the shift one of the fastest, most spectacular changes in vehicle preferences in recent history—and it's left Hummer, which is preparing to introduce its largest vehicle later this year, racing to come up with options such as flex-fuel vehicles.
But for now, Hummer is a liability for GM. It's hard to sell, and it's hurting GM's chances of increasing its credibility as a green player. Last week, for example, when GM was announced as the “exclusive automobile sponsor” of Discovery Communications' new green channel, the New York Times said this might “raise eyebrows” given that GM makes Hummer.
Brand Tags, Noah Brier's clever application that collects the reactions of consumers—the ultimate arbiters of a brand's meaning—to company and product names and arranges them in tag clouds, gives a good idea how the public perceives Hummer today. Some of the most prominent tags entered by people who visited the Web site include terms like “gas guzzler,” “stupid” and “wasteful.”
In 2006 Hummer sold 71,524 vehicles. In the first five months of this year, Hummer sales slid 36 percent to 14,086. In May alone, GM reported Hummer sales plummeted 60 percent to 1,843 units vs. May 2007. Outside North America, however, Hummer is growing; the most recent figures show a nearly 35 percent jump to 4,113 units through April vs. a year ago.
Worse, as gas prices continue to climb—filling the 32-gallon tank of the H2 sport-utility vehicle (SUV) with $4-a-gallon gas costs $128—shoppers are crossing Hummer off their consideration lists. Last month marked a record low for the number of shoppers thinking about buying a Hummer—the third consecutive month the brand saw fewer shoppers, according to data from consultant Compete. Hal Wurster, director of Compete's auto practice, called the fewer than 9,000 Hummer shoppers in May “the basement of demand.”
Even 20,000-plus shoppers in February was healthy for the niche brand, though that tally was less than half of Hummer's robust 50,000-plus shoppers in January 2007, he said.
Megan Stooke, Hummer marketing director, said she had not seen Compete's data, but until May, Hummer's market share had been growing in a segment that's declining. According to Ms. Stooke, one-third of Hummer sales are new to GM—a third of those sales are sourced from Chrysler L.L.C.'s Jeep brand. According to Automotive News, a sister publication of Tire Business, overall sales in the premium-large-SUV segment in which Hummer competes were down 11.5 percent in the first five months of the year.
Then there's the question of who might be interested in buying Hummer, to which GM acquired civilian-vehicle marketing rights from AM General in December 1999. Wes Brown, vice president of consultant Iceology, speculated the most likely buyers would be auto makers in China or India.
Yet he said GM's apparent willingness to give up on Hummer is “an overreaction to the current situation.” Hummer, he said, has an incredibly strong brand image, which makes it a viable brand, and GM should find a way to make Hummers “incredibly fuel-efficient to shock the marketplace.”
You read that right: a fuel-efficient Hummer. The brand, in fact, will introduce a flex-fuel, E85 version of the H2 as a 2009 model in the fourth quarter.
But unlike Chevrolet, which for months has advertised its planned plug-in Volt car even though it is not due until 2010, Hummer hasn't publicized the E85 model because it's not available yet, a spokesman said. And the H3 SUV will add an E85 version in 2010, with diesel engines expected in 2011, according to Automotive News.
The problem, Mr. Brown said, is that changing to more-fuel-efficient engines or downsizing Hummers can't be done in six months. “GM got caught scrambling,” he said.
In the meantime GM is readying the H3T, a four-door cab and open truck bed that will hit showrooms in the fall. Ms. Stooke said there's been no talk of ditching the H3T, which is 22 inches longer than the H3, noting that the company is expecting big things from the model since there's nothing like it on the market. “The H3T is a huge opportunity for us. We have a segment buster” that could translate to between 30 percent and 40 percent of all Hummer's vehicle sales, she said.
GM is saving a big part of its 2008 ad budget for the launch (Hummer received only $14 million in measured media spending for the first quarter of this year, according to TNS Media Intelligence, compared with $18 million in the first quarter of 2007), which will mark its first major TV effort of the year. The brand is handled by Modernista, Boston and Amsterdam, Netherlands.
Ms. Stooke wouldn't discuss the marketing plan, but observers said GM has its work more than cut out for it. “It will be a difficult thing to bring that model out in this environment if it doesn't reinvent Hummer as more-fuel-efficient,” Compete's Mr. Wurster said.
“When all is said and done, Hummer is a distraction” for GM, said Fran O'Hagan, a former product planner at Land Rover and founder of consultant Pied Piper Management. “What can you do at Hummer than you couldn't do at Chevrolet or GMC?”