Production of Hummer SUV to be Cut

DETROIT, Aug 24, 2004; Reuters reported that General Motors Corp. has asked the supplier of the mammoth Hummer H2 to cut production of the sport utility vehicle, whose sales have slowed over the past year, officials said on Tuesday.

AM General, which builds the Hummer H2 in Indiana, in late October will cut back to a single shift of workers for the vehicle, AM General spokesman Lee Woodward said. AM General will transfer some workers to another Indiana plant to manufacture more of the Humvee military vehicles to meet increased demand, and the others will join the first shift of workers at the Hummer H2 plant, he said.

U.S. sales for the Hummer H2, the hottest vehicle on the market when it was launched about two years ago, have fallen nearly 22 percent so far this year.

Cutting production will help reduce inventories of unsold H2s, Hummer spokesman Pete Ternes said. Under a 1999 agreement with AM General, General Motors acquired rights to the Hummer brand name and to market the vehicles.

Inventories have grown to 64 days supply of the H2s, above the ideal level of 60 days, Ternes said. The production cuts will result in 1,000 fewer Hummer H2s being produced through the end of the year, he added.

U.S. sales of the H2 should total about 25,000 this year, the same amount that GM anticipated before the production cuts, Ternes said.

With most of its other brands, GM keeps production high even as inventories grow, and offers higher incentives to clear dealer showrooms. But GM takes a different tact with Hummer. "We're trying to keep the brand at more of a premium level," Ternes said.

Still, GM began offering dealers incentives in July to help clear 2004 models of the H2, and is also offering a discount to consumers who lease a 2005 model.

Two weeks ago, the holding company of billionaire Ronald Perelman said it would form a joint venture with AM General's parent company, Renco Group, which would give Perelman's MacAndrews & Forbes Holdings Inc. managing control of the Hummer manufacturer.

GM expects that the Hummer brand will continue to grow with the launch this summer of a pickup truck version of the H2, to be followed by a smaller SUV called the H3 in the second quarter next year.