INGERSOLL, ONT. -- At the world's largest auto maker, it is small cars that are huge this year.
General Motors of Canada Ltd. is introducing a wave of new subcompact and compact cars -- mainly in its key Chevrolet division -- in a determined bid to revitalize its presence and regain dwindling market share in these crucial segments of the Canadian market.
"If we're going to grow our share, these are the products that are going to carry the load," Michael Grimaldi, GM Canada's president, said in an interview. "Our objective to grow our total share is really dependent on us increasing our share in this low portion of the market."
His company's bid to strike back puts the focus on subcompact and compact cars as a key battleground in the automotive market in 2004 and beyond, with the Detroit-based companies fighting back in niches where Japan and South Korea-based companies have made major inroads in the past five years.
While there is a flood of new passenger cars being introduced by GM, DaimlerChrysler Canada Inc. and Ford Motor Co. of Canada Ltd. this year, success in the smaller segments is critical. Altogether, compact and subcompact cars represent one-third of the entire new vehicle market in Canada. Adding to their importance, these are the cars first-time buyers generally shop for, so if auto makers can hook drivers here, they stand a chance of landing them for life.
"If we're going to recover share, we've got to recover what we've recently lost to some of the Japanese and the Koreans," Mr. Grimaldi said.
In the two segments, GM's share fell to 19.2 per cent last year from 28.4 per cent in 1999. Toyota Canada Inc. edged ahead of GM at 19.3 per cent.
But the dramatic increase has been in the performance of the two South Korean-based auto makers, Hyundai Auto Canada and Kia Motors Canada.
In 1999, they accounted for a combined 5.8 per cent. By last year, that had more than doubled to 12.4 per cent.
GM is fighting back with South Korean-made products of its own -- the Chevrolet Aveo subcompact, Optra compact and Epica mid-sized car, all of which are assembled at the GM Daewoo Automotive and Technology Co. joint venture and are already on sale. Later this year, GM's Pontiac dealers will start selling the Wave, another subcompact made in South Korea.
Other new compacts are coming, the Cobalt for Chevrolet to replace the aged Cavalier, and the Pontiac Pursuit, which replaces the Sunfire. Chevrolet also gets the Malibu mid-sized car and a version called the Malibu Maxx, as well as a new Corvette muscle car and the Equinox compact sport utility vehicle that was launched yesterday at the auto maker's joint venture assembly plant, Cami Automotive Inc. in Ingersoll, Ont.
GM is trying to duplicate at Chevrolet the success it has had at Cadillac, where a $4-billion (U.S.) investment in new vehicles such as the CTS sedan and SRX luxury SUV, backed by an edgy advertising campaign, has started turning around that brand's fortunes.
"Chevrolet is extremely critical," Mr. Grimaldi said, because it's one of the entry-level brands, but also attracts customers who have been driving competitors' vehicles.
The strategy is to establish what he called a "price/product ladder" that starts with Aveo at $13,820 (Canadian) and Optra at $16,190. Those two cars, combined with Cobalt, give Chevrolet a much stronger product offering in the low end than it has had in recent years when the division's only small car was the Cavalier. Hyundai, Kia and Toyota undercut that with subcompacts that were less expensive than Cavalier and Sunfire, as well as compacts that competed directly against the GM twins.
"I wouldn't want to be a Kia or a Hyundai dealer right now with GM having this product," said Paul Murray, who owns Murray Chevrolet Oldsmobile Cadillac in Medicine Hat, Alta.
The key is making sure the vehicles are at the right price as well as being the right products, Mr. Grimaldi said.
Pricing of the new Cobalt and other new GM vehicles will be critical, said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. A threshold of $15,000 to $18,000 in the compact car segment may cause sticker shock for Canadians who bought Cavaliers in recent years at considerably less than that level once rebates were factored in, Mr. DesRosiers said.
Nonetheless, he praised GM's strategy with Chevrolet.
"They're focusing on exactly the thing they need to do, and that is product," he said. "It's critical. It's their core product, even more so in Canada than the United States."
It was price that ended up being a crucial factor in John Foss's recent decision to buy a new Pontiac Sunfire.
"At this point for us, economically, it makes sense to stay North American," said Mr. Foss, a 44-year-old who teaches Grade 7 and 8 physical education in Waterloo, Ont.
A five-year, interest-free loan was attractive and outweighed the importance of the higher resale value of a Toyota, he added.
Mr. Foss also leases a Ford Windstar minivan, but needs a reliable second car to shepherd three children to various sporting activities.
"For us, it's never about what we are going to get at the end," he said. "We want something at the best possible price."
It's difficult to keep the price of entry-level cars at $10,000 (U.S.) or about $13,000 (Canadian) in North America, said Wolfgang Bernhard, chief operating officer of the Chrysler group, which watched its share of the small-car market tumble to 3.5 per cent last year from 7.2 per cent in 1999.
"We are looking at our options," Mr. Bernhard said in an interview.
The decision by another DaimlerChrysler AG unit,
Mercedes-Benz Canada Inc., to start selling the two-seater smart micro-compact car later this year is one way the auto maker is addressing the situation, he said. That announcement by the luxury vehicle maker was the highlight of the Canadian International Auto Show. Chrysler dealers have been clamouring for a small car to compete with GM, Toyota and the South Korean manufacturers, but the Chrysler group's big push this year is in full-sized passenger cars, with a new small car not scheduled to arrive until next year at the earliest.
Ford Canada is also pushing hard in the passenger car segment with the Five Hundred, which replaces the Taurus as the long-running flagship of the brand, and the Freestyle, a crossover utility vehicle that is closer to a car than an SUV.
Ford Canada will beef up its single entry in the small-car market when it redesigns the Focus compact for the 2005 model year this fall. Ford's share of the small-car market rose to 7.6 per cent from 6.7 per cent in 1999, the year before the Focus made its debut. But last year's figure is down from a five-year peak of 11.4 per cent reached in 2000.
Smaller cars dominate the Canadian market in part because of higher gas taxes and lower disposable incomes here than in the United States, where mid-sized cars and full-sized pickups represent about one-third of the market.
Compact SUVs are another growing segment and another target area for GM's Chevrolet division this year with the Equinox. Employees at Cami hooted and hollered yesterday as a blue Equinox rolled off the assembly line at a plant that is one of the newest in Canada, but has never come close to meeting annual production capacity of 200,000 vehicles a year.
It will compete with Toyota's RAV4, the CR-V from Honda Canada Inc. and the Ford Escape, which is the best-selling vehicle in the segment.
"The smaller sport utilities are more the sweet spot here in Canada," Mr. Grimaldi said. "Equinox is going to be extremely important for GM of Canada."
It's a small world
Canadian Market share in compact and subcompact cars
Company; 2003; 2002; 2001; 2000; 1999
Toyota; 19.3%; 14.9%; 12.7%; 14.7%; 16.9%
GM; 19.2%; 21.9%; 21.3%; 22.5%; 28.4%
Honda; 13.8%; 13.7%; 13.9%; 13.6%; 14.4%
Hyundai; 8.9; 8.8%; 8.6%; 6.8%; 5.6%
Mazda; 8.8%; 9.6%; 9.7%; 6.9%; 6.2%
Ford; 7.6%; 7.9%; 8.8%; 11.4%; 6.7%
Chrysler;3.5%; 3.1%; 4.6%; 7.0%; 7.2%
Kia; 3.5%; 3.2%; 3.4%; 1.9%; 0.2%
Nissan; 3.5%; 4.3%; 5.4%; 2.7%; 1.0%
Other; 11.9%; 12.6%; 11.6%; 12.5%; 13.4%
SOURCE: DESROSIERS AUTOMOTIVE CONSULTANTS INC. ANNUAL YEARBOOKS
