Like Its Outsized Persona, Hummer Won't Go Quietly

Like Its Outsized Persona, Hummer Won't Go Quietly

By Michelle Krebs June 6, 2008

By Dale Buss 

Hummer has always appealed to in-your-face consumers. Get out of the way of a tanklike, wide-stanced Hummer or suffer the consequences. And, oh do those hefty models absolutely devour gasoline? Whatever.

That unapologetic approach worked for most of the decade General Motors has owned the Hummer brand. But now that GM's leadership has decided to about-face away from their long reliance on sales of large, heavy, gas-hogging vehicles, the company announced this week that it is re-evaluating Hummer's future.

GM CEO Rick Wagoner can't just wish away the Hummer dilemma. He has four main options: Sell Hummer, as Ford recently sold a Land Rover-Jaguar group that had become an albatross; discontinue Hummer as GM did Oldsmobile a few years ago; revamp the division and its lineup with some sort of greener cast; or basically stick with a bully-on-the-block persona that, until very recently, had made Hummer a vital and growing niche brand.

 

Whatever decision GM makes, it should come fast. The company reportedly was planning to disclose next steps as early as today with at least part of Hummer's anxious dealer body; reports also surfaced today that investment bankers are soliciting bids from India's two biggest automakers. And meanwhile, combined sales in the two segments in which Hummer competes -- large SUVs, with its H2, and midsize SUVs, with its H3 -- were each off a breathtaking 45 percent in May.
 
"We have no defined timetable, but we've already begun the work," said Mark LaNeve, GM's North America vice president of sales. "It's in everybody's best interest to finish as quickly as possible."

Appealing to the Humminator

GM's sudden hesitation has put the brakes on the success of one of the most remarkable brands in recent automotive history. Hummer, of course, is the off-road vehicle line derived from the "Humvee" (High Mobility Multipurpose Wheeled Vehicle, or HMMWV) that has displaced the Jeep as the utility vehicle of choice for the American military over the last generation.

AM General, a division of the old American Motors Corp., builds the rugged and extremely capable Humvee at its South Bend, Indiana, plant. And while the company long had considered the possibility of introducing a consumer version, two events accelerated its decision. First was Humvee's versatile, militarily reliable performance in the first Persian Gulf War, images of which saturated the American news media. Second was Arnold Schwarzenegger's public praises of Humvees -- the Terminator became the Humminator.

When Hummers finally hit U.S. public roads in 1992, they quickly evolved from a salute to the technological might of the American military into a personal statement of conspicuous consumption. The price of the original Hummer, which later became known as H1, easily could top $100,000. Hummer was so obnoxiously big and loud that it created a purposive ruckus everywhere one traveled. And while buyers often cited the vehicle's unmatched off-road capabilities, "Look at what I'm driving!" quickly became the not-so-unspoken message of owning a Hummer.

Confident that it had landed a rare prize, GM bought the Hummer brand name in 1998 while AM General continued to manufacture the vehicles. GM renamed the original vehicle H1 and introduced two pared-down, homegrown models with more consumer-oriented pedigrees; H2, which it contracted AM General to build, and the still smaller H3, which GM builds in Shreveport, Louisiana.

Sweeping the Globe

GM marketing cobbled Hummer into the industry's most extreme brand, featuring an ostentatious lineup that allegedly could go places on the globe no other vehicles could go -- for people who wanted to be watched while they went there. The company also licensed a wide variety of stuff to celebrate the Hummer lifestyle, including cell-phone cases, jeans and umbrellas.

While it remained a relatively niche brand, Hummer's growth seemed to become inexorable. It's easy to forget that U.S. sales didn't peak until 2006, when GM sold about 76,000 Hummers in North America.

Over the last few years, GM also helped most of its 170 U.S. dealers cluster Hummer with their Cadillac and Saab franchises. And a few dozen dealers invested millions of dollars in standalone Hummer showrooms that feature a distinct quarter-wheel façade. A total of 73 dealers invested in on-site "test tracks."

GM also has succeeded in making Hummer a truly global brand, with 224 dealers abroad, in 37 countries. And while they're still small, sales abroad have continued to grow most places.  Total non-U.S. sales climbed 35 percent last year, to a total of more than 4,100 units. In Europe so far this year, Hummer sales are pushing 1,000 units, up 43 percent compared with a year ago; and in Latin America, Africa and the Middle East, combined sales of nearly 1,600 Hummers were up 27 percent year-to-date.

Beginning in late 2006, GM began producing the H3 also at its Port Elizabeth plant in South Africa, for international markets. And a Russian automaker, Avtotor, began producing a few hundred H2 and H3 vehicles annually from kits, under license in Kaliningrad, Russia, for domestic consumption.

Green Becomes a Red Light

Unfortunately for GM, bombastic positioning also made Hummer emblematic of heedless fuel consumption at a time of rapidly increasing concern about climate change -- and fast-rising gasoline prices. Not surprisingly, Hummer became the punch line in all manner of environmentalist diatribes and Exhibit A in the case for cluelessness by the U.S. auto industry. Reportedly, even Schwarzenegger, now governor of California, largely mothballed his Hummer fleet.

In large part bowing to such developments, GM discontinued production of the H1 -- and its single-digit fuel-economy performance in the city -- in 2006. And after Schwarzenegger had one of his Hummers converted to run on biofuel, Wagoner also announced that Hummer soon would become available to run on biofuels.

But Hummer either can't or won't backpedal fast enough. Last year, U.S. sales plunged by 22 percent, even as GM was announcing an investment of $73 million in the Shreveport plant and a planned late-2008 introduction of an H3T pickup-truck version. Over the winter at auto shows, Hummer's new HX concept was popular, with its six-cylinder engine, modular and adjustable components, and stance smaller than H3's.

Two new factors may finally have arrested Hummer's momentum, and its direction, for good. One of them is the brand's freefall in sales so far this year, by nearly another 30 percent; gasoline prices of $4 a gallon have all but called into question the sanity of buyers of, say, an H2, which is such a huge vehicle that the federal government doesn't requie disclosure of its mileage ratings and whose fuel economy presumably is so bad that GM won't volunteer it. 

The second important factor is that GM finally got serious about wanting to be seen as an environmentally responsible player -- perhaps even the "greenest" OEM. Over the last several months, even ahead of the recent huge jumps in gasoline prices, GM rather drastically began repositioning itself in recognition of Americans' fast-growing environmental sensibilities.

"Environmentalism and fuel economy are not fads or passing interests, they are fundamental changes in our marketplace that need to be addressed in our marketing messages," Mike DiGiovanni, GM's executive director of global market analysis -- and formerly general manager of Hummer -- told Brandweek this week.

In that light, Hummer could be seen as the "anti-Prius." The hybrid Prius "has done wonders for the image of Toyota," noted Michal Ann Strahilevitz, a marketing professor at Golden Gate University in San Francisco. "Pushing the Hummer now could have the opposite effect on GM's image."

Damaged Brand: For Sale?

So, last week, Wagoner said before GM's annual meeting in Wilmington, Delaware, that GM was "undertaking a strategic review of the Hummer brand to determine its fit within the GM portfolio." He said that GM was considering all options, "from a complete revamp of the product lineup to a partial or complete sale of the brand."

Barely elaborating for his boss, LaNeve told reporters that GM was "talking to a lot of people" about the future of Hummer but has "no defined timetable."

GM's knee-jerk reaction might be to try to unload the brand and product line and be done with it. That's basically what Ford did when it passed off Jaguar and Land Rover to Tata Motors earlier this year for $2.3 billion, about half of what Ford had paid for the brands.

And in fact, a report Friday in India's Economic Times has suggested that investment bankers have approached India's Tata and Mahindra & Mahindra to gauge whether they would be interested in acquiring Hummer. Both companies refused to comment, the newspaper said.

But those evaluating a sale possibility strain to figure out how unloading Hummer could result in anything but an ignominious giveaway by GM. Still responsible for generating around $2 billion in annual revenues, the brand could fetch maybe $500 million to $750 million in a sale, said Wall Streeters contacted this week by Reuters. Possible buyers could emerge from Russia, where Hummer has a strong cachet, or perhaps China as well as India and the Middle East.

"I'm not sure who would buy it other than perhaps an emerging global company that simply wanted a feather in its cap," said Lincoln Merrihew, senior vice president of TNS Automotive, a New York-based consulting company.

It's also possible that GM could strike a partnership with someone willing to refocus growth of the brand outside the United States. But while Hummer's overseas sales continue to grow on a relatively narrow base, high gasoline prices -- and rising environmentalism -- are global factors that could thwart interest in Hummer by buyers located anywhere.

One data point that might deserve consideration is that who owns Hummer apparently doesn't make much difference to consumers. Eighty-seven percent of Hummer intenders -- those who planned to buy a Hummer within six months -- said that they would continue with those plans even if GM sells the brand, according to a survey of more than 900 Hummer intenders conducted by CNW Research, in the wake of Wagoner's announcement.

Heeding Dealer Interests

Another option for Wagoner would be outright killing Hummer, just as GM did with Oldsmobile a few years ago. But that actually might be an over-reaction, especially for a brand that has remained robust until very recently -- and when it's still possible that gasoline prices could moderate into less of a factor over the next several years. Oldsmobile, by contrast, had dwindled for many years, and its brand identity had gotten permanently lost between Buick and Pontiac.

Contemplating the death of Hummer also would bring GM hard up against a group with strong and independent interests in the brand's continuation: Hummer dealers. Until recently GM has been settling up very expensively with some of the dealers who were disenfranchised by its Oldsmobile decision.

Not only have many Hummer dealers invested substantially, and very recently, in the future of the Hummer brand and franchise, but some of them are far from persuaded that Hummer's image has become a fundamental problem.

"This is not an Oldsmobile kind of thing," said Craig Hubble, general manager of Hummer of Novi (Michigan) and Detroit Hummer. Along with other dealers, he believes that one of Hummer's biggest problems has been a shortage of products. "Sales were down last month mainly because of a lack of inventory because of the American Axle strike," he said. GM has acknowledged that the several-week strike by the major supplier robbed the company of several thousand sales.

"We don't have a problem moving Hummers," Hubble insisted. "H3 gets better gas mileage than some realize -- up to 22 miles a gallon. We have strong brand loyalty and, dollar for dollar, the best product on the market."

Dealers and others also pointed out that GM is just months away from launching the H3T. It will debut in the fall amid the worst pickup-truck market in several years, and facing tougher competition in the shrinking segment from a new Ford F-Series and new Dodge Ram.

"But it's smaller than a full-size truck, so H3T will be positioned well from a size standpoint," said Hummer spokesman Nick Richards. "And it offers capabilities of no other truck in terms of off-road capabilities and accessories. Truck consumers like to accessorize pretty heavily."

Like Turning an Oil Tanker

Some think the most likely option for Hummer might be for GM to gut things out, probably by recasting the brand and product line in a way more attuned to quickly changing sensibilities about gas prices and the environment.

GM already has been trying to do that to some extent. Its new advertising theme is, "Welcome to the open," featuring scenes of H3 parked alongside a mountain lake and H3s easily toting kayaks on their wide roofs. Print ads mention that H2 has a "lower annual fuel cost than Land Rover LR3."

Richards, the Hummer spokesman, noted that "all the H3 marketing messages have been about size, price and fuel economy being comparable to that of other mid-size SUVs such as [Jeep] Wrangler and FT Cruiser. They're all within about one mile per gallon of each other."

Some marketers said they would love to have the chance to reposition Hummer with an environmental patina. "Hummer is all about being manly and rugged, and that's all about the outdoors," said Bob Knight, vice president of advertising and digital media for Harrison Edwards, a Bedford Hills, New York, marketing firm that specializes in green positioning. "But the outdoors, nowadays, is all about the environment and carbon footprints. GM could make that transition with Hummer."

As a case in point to the skeptical, Knight offered Wal-Mart as an example. "Not too long ago, its image was all about cheap labor and Chinese manufacturing," he said. "But they've managed to rebuild their image in part by going green -- with eco-friendly lighting in their stores, only offering incandescent light bulbs for sale, starting a no-idling policy for their trucks," and adopting environmentally friendly land-use policies with their new stores.

Lessons From Jeep

Certainly, GM is trying to give Hummer some green credibility as quickly as it can. The HX concept was shown with the option of a flex-fuel engine, for example. And maybe GM could convert its Hummer lineup to hybrids the way it has recently begun offering a hybrid option on its large GMC Yukon and Chevrolet Tahoe SUVs.

But it would severely stretch the bounds of credulity for GM to try to repaint Hummer with too much green. Consider Jeep. In recent years, Jeep has expanded its line to include crossovers built from other Chrysler models and "soft-roaders," like the Dodge Caliber-based Compass. It has been argued, however, that those additions to Jeep tarnished the iconic brand. Chrysler President Jim Press, who was appointed from Toyota late last year to run sales and marketing, denounced the move in his first briefing with the press as a Chrysler exec. He insisted Jeep would return to its roots of Trail-Rated ruggedness and drop the softroaders from its line under his watch.

In the end, some people think -- or at least hope -- that GM's announcement about reevaluating Hummer was as much of a feint as anything else, perhaps designed to buy GM leadership time to figure out how to revitalize and keep the Hummer brand, maybe partially designed to slow environmentalists' criticisms. These true believers think that Hummer continues to be a brand on the long-term rise and that GM would be foolish to let it go now.

"I don't think GM will sell Hummer," said Craig Cutcher, sales manager of Batchelor Hummer in San Antonio. "Maybe this will actually just end up getting us more products to sell."

 

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.