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<H1><FONT face=Arial,Helvetica>H2 sales on the decline</FONT></H1><FONT
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Although faced with higher gas prices and H3's debut, GM isn't
worried
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By ANDREW SOUKUP
Tribune Staff
Writer
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An AM General worker checks an H2 door panel for
imperfections before the product was rolled out in 2002. Sales of the H2 are
lagging, but General Motors officials don't believe gas prices are the
cause.
<P align=right><FONT size=-1>Tribune File Photo</FONT></P>
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<H3>About the H3</H3>
<LI>The H3 is scheduled to hit dealer showrooms later this spring. However, this
latest entry will be the first Hummer-brand vehicle not to be built in
Mishawaka. Instead, General Motors plans to build the H3s at a facility in
Shreveport, La. The midsize SUVs will be shipped to North America and some
European markets.
<LI>On Wednesday, the automaker announced it plans to build a second H3 factory
in South Africa. When that facility begins shipping H3s in 2006, it will mark
the first time a Hummer has been built outside of the United
States.
Source: General Motors Corp.
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General Motors Corp. says it isn't worried by gradually declining H2
sales.</P>
But industry analysts say sales of the Mishawaka-made sport utility vehicles
could continue to drop because of rising gas prices and the new H3, which is
scheduled to hit showroom floors in the next few months.</P>
For the first three months of 2005, General Motors shipped 5,883 H2s, a 6.6
percent decline from 2004.</P>
GM spokesman David Caldwell considers 2004 the benchmark year for the H2,
which was introduced to intense demand in mid-2002.</P>
The automaker, which owns the rights to the Hummer brand, doesn't believe
that high gas prices will deter people from purchasing the H2 in the short
term.</P>
"We're dealing with a pretty wealthy customer on average," Caldwell said.</P>
Analysts agree. The consumer who can afford a vehicle that starts at $48,000
doesn't have to worry about getting about 12 miles per gallon, they say.</P>
"In terms of current Hummer sales, unless gas prices hit the $3 or $3.50
mark, gas won't affect Hummer sales," Edmunds.com market analyst Mike Chung
said.</P>
While H2 sales have declined in 2005, Chung doesn't believe the high-end
vehicles are underperforming in the marketplace.</P>
Instead, he notes that much of the luster that accompanied the H2's highly
anticipated launch has largely faded.</P>
"The market is saturated," he said. "A lot of the people who really wanted
the H2 have already gotten it, and a lot of the buzz is dying down."</P>
Shrinking Hummer sales will most likely have a tangible effect on South
Bend-based AM General's operations.</P>
That was part of the reason why AM General cut its second shift at the
Mishawaka H2 plant in October. The workers who weren't moved to first-shift
production were sent to the H1/Humvee plant, which is busy filling military
orders.</P>
Declining interest in the H2 and the high price tag on the $100,000 H1 --
which represent just 1 percent of all Hummer sales -- were some of the reasons
why GM announced it planned to introduce the H3 this spring.</P>
The midsize SUV, which will carry an estimated sticker price somewhere
between $30,000 and $35,000, will be built at a GM plant in Louisiana.</P>
There isn't nearly the same amount of buzz surrounding the H3 launch as there
was for the H2, a product of the fierce competition in the midsize SUV class,
Chung said.</P>
However, he noted that devoted Hummer enthusiasts could trade in their H2s
for more fuel (and wallet) friendly H3s -- further cutting into H2 sales.</P>
"When the H2 came out, it attracted people to the Hummer brand," he said.
"And with the H3, a lot of loyal buyers might see it as a better
alternative."</P>
For GM, the stakes aren't so high.</P>
Hummer sales make up a scant 1 percent of the giant automaker's total SUV
shipments, according to company figures.</P>
Nor does the company believe gas prices will completely chase people away
from purchasing the locally manufactured vehicles.</P>
"It's one of many things that we keep an eye on, and it's something that does
have a potential impact," Caldwell said. "But we're much more worried over
things which we do have control."</P></Table>