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Thursday, July 01, 1999
Copyright © Las Vegas Review-Journal
GM sings praises of Hummer deal
Associated Press
DETROIT -- Take a hike Jeep. Move over Ford Excursion. The General's buying Hummer.
General Motors Corp. said Wednesday it plans to acquire the rights to market and distribute the Hummer, the civilian version of the military's tanklike Humvee all-terrain vehicle. More significantly, GM hopes to expand the Hummer line into the growing, high-profit market for big sport utility vehicles.
Ron Zarrella, president of GM's North American operations, said the Hummer brand has strong appeal among under-30 drivers, a segment the world's largest automaker has struggled to attract in the United States.
"It's very distinctive from anything else we have and anything else in the automotive market," he said. "It has a positioning that revolves around the ultimate go-anywhere, do-anything vehicle. It's actually very strong with younger consumers in the research we did."
Under a memo of understanding with manufacturer AM General Corp., GM plans to gain worldwide rights to the Hummer brand name. AM General would continue to assemble Hummers in Mishawaka, Ind.
GM plans to market and sell the vehicles through the 52 Hummer dealers in the United States and Canada and eventually through its own, much larger dealer network, though Zarrella said details remain to be worked out. He said the deal should close within two to three months.
If done right, expanding the Hummer brand could position GM to better challenge its Detroit competitors in the light truck market: Ford Motor Co. and DaimlerChrysler AG. Both companies have been a step ahead of GM in introducing new light truck models.
Ford plans to begin selling the largest SUV yet in the fall, the Excursion, just as GM introduces its redesigned but slightly smaller Chevrolet Suburban and GMC Yukon XL twins. DaimlerChrysler's Jeep and Dodge divisions have been tough competitors as well, with such hit models as the Dodge Durango and Jeep Grand Cherokee.
Analyst Gary Lapidus of Sanford C. Bernstein & Co. said the Hummer could help GM but probably would not be enough to regain sales leadership in the light truck market from Ford.
"I don't think that one brand alone is going to help them regain dominance," Lapidus said. "Though you might have argued the same thing with Chrysler when they bought Jeep. They've certainly done a good job with that."
The Hummer is truly a niche vehicle. Priced from about $68,000 to $86,000, it appeals to a small group of well-heeled drivers who want a big, military-style vehicle with an intimidating stance. GM could use the brand's tough image to market a new line of SUVs and pickups.
The Hummer was originally designed for military use. It's known in the armed forces as the Humvee, the pronunciation soldiers use for the acronym HMMWV, which stands for High Mobility Multipurpose Wheeled Vehicle. It's built to go just about anywhere -- over boulders, across streams, and through mud, snow and desert sands.
After the Humvee earned praise and publicity in the Persian Gulf War, AM General began marketing it to civilians in 1992. Its first customer was Arnold Schwarzenegger, who bought a custom-made conversion of the military model and the first two civilian production models off the assembly line.
Zarrella said any new Hummers would have to be consistent with the brand's image and not conflict with trucks GM already makes.
"Right now it's an interesting niche," Lapidus said. "AM General could use GM's help in product development, manufacturing and distribution. They just need to get Arnold as their spokesman. I could just see the ads now: "Hummah -- Ahh'm baaack."
AM General sold just 1,059 Hummers retail in the fiscal year ended Oct. 31. Total Hummer and Humvee sales worldwide were just over 3,000, spokesman Craig Mac Nab said.
Under the proposed deal, privately held AM General will continue to market the military version and produce other light- and medium-duty trucks for military and government use.
Though Zarrella said GM does not plan to take an equity stake in AM General, the deal could help the smaller company, which has been struggling with declining military spending and $30 million in lost sales over the past three years. Last year it lost $8.3 million on sales of $392.8 million.
AM General, which grew out of a military truck contract with the long-defunct Studebaker Corp., is owned by New York-based Renco Group Inc.
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