Sales Cool for Hummer H2

DETROIT, March 3, 2004; Michael Ellis writing for Reuters reported that sales of the Hummer H2 sport utility vehicle once the hottest SUV on the market have cooled in recent months, forcing General Motors Corp. to offer dealers incentives to help move sales.

U.S. sales for the H2 fell 21 percent in February, the sixth straight month of a year-over-year drop in results. Sales fell even though GM offered 48-month leases on the SUV last month with no down payment, no first month's payment and nothing due at the signing.

Inventories of unsold H2s are running at a 52-day supply, more than twice as high as the rate a year ago, although at a healthy rate compared to the overall industry.

Hummer owners ranked the brand last in a benchmark poll of vehicle quality released last year by J.D. Power and Associates, complaining about the military-inspired vehicle's fuel consumption, among other gripes.

"What you're dealing with here is a phenomenon that was really hot to be begin with. It caught the public's fancy. But (the H2) has a limited audience, it's expensive, and it uses a lot of gasoline," said George Magliano, director of automotive industry research with the forecasting firm Global Insight.

But GM remains unconcerned.

The Indiana plant that makes the H2 has annual capacity for 40,000 vehicles, but even if sales continue to drop this year, "we can go significantly below 30,000 and still make a profit," Hummer spokesman Pete Ternes said on Wednesday.

He added that a new pickup truck version of the H2, arriving in dealerships in April, will help maintain H2's worldwide sales at around 36,000. Furthermore, GM expects Hummer brand sales to grow to 100,000 annually after it launches a smaller SUV, the Hummer H3, next year.

GAS THIRSTY

Dealers said they are already taking customers' deposits on the new pickup, called the H2 SUT for "sport utility truck." But they said the truck is failing to generate the buzz the H2 garnered in 2002, when some consumers paid up to $10,000 on the Internet auction site eBay just to be the first to own the new SUV.

But interest is growing in the H3, which will sell for between $30,000 and $40,000, dealers said.

"The H3 is going to have just as much buzz as the H2 had," said Rob Eisenhauer at Cappellino's Hummer of Buffalo in Williamsville, New York.

Meanwhile, Hummer is ready to offer dealers cash incentives to help sell the 2004 model year H2 SUV to make room for the 2005 model. The new model arrives early this year -- in June -- Ternes said.

GM has also addressed some of the concerns raised by the J.D. Power quality study, Ternes said. Unlike other passenger cars and trucks, and because of its heavy weight, GM doesn't have to display the H2's 11 to 13 miles per gallon gas consumption on the window sales sticker. But Ternes said dealers are telling consumers about the gas rating to prevent ugly surprises.

Nonetheless, dealers say the well-heeled buyers who buy the H2, which starts at about $48,000, aren't concerned about gas prices, even with prices at record highs in some states.

"It's a rarity that somebody says 'I need something with better gas mileage,'" the sales manager at a Michigan Hummer dealership said.

The H2 may have lost some of its initial spark, but Magliano said he expects sales to stabilize, with the SUV continuing to be a profitable vehicle for GM.

"Do I expect this vehicle to tank? No. I think it has a select following. It's going to seek its niche and it will maintain itself," he said.