The bigger the better!

General Motors is raising the stakes on its bet that sales of sport utility vehicles will keep driving its global profits as Chinese and other markets sag.

GM said it plans to spend $1.4 billion to modernise the factory in Arlington, Texas, that builds the Cadillac Escalade, Chevrolet Suburban and GMC Yukon sport utility vehicles, some of the most popular cars on the roads of Bahrain.

It’s the largest single investment in a $5.4 billion, three-year plant upgrade programme announced earlier this year.

GM chief executive Mary Barra has promised investors that the automaker will generate an average 20 per cent return on its capital investments going forward, but the money spent on Arlington will deliver well in excess of that, people familiar with the company’s plans say.

Though GM operates almost 400 factories around the world and sells vehicles in 120 countries under 11 different brands, the vehicles built in Arlington alone generate about $3 billion or more in profits annually, or almost half of GM’s $6.5 billion operating profit last year, analysts said.

In part because its major rivals backed away from the large SUV market when petrol prices spiked in 2008-2009 and killed demand, GM now boasts a 64 per cent share of the US. Now that petrol prices have fallen, US consumers are snapping up Escalades and Suburbans again.

GM realises operating profits of $10,000 per vehicle on the Arlington SUVs, with higher-end models at triple that rate or more, analysts estimate.

“The Escalade is just a machine to print money,” Sam Fiorani, vice-president of global vehicle forecasting at AutoForecast Solutions, said of the Cadillac large SUV. “When you’re selling them for $83,000 apiece and you have only 20 days’ supply, people are lining up to give you money.”

Much of the investment announced last week will be spent to install new production equipment and a new paint facility alongside current production lines. GM isn’t planning to significantly increase total production capacity at the plant, it said.
One supplier source said the Detroit company has decided the next-generation big SUVs in 2019 will use more aluminium to reduce weight and boost fuel economy, which will hedge against higher gas prices.

Supplier sources say GM’s rivals want to get back in the game. Ford plans to offer redesigned Ford Expedition and Lincoln Navigator SUVs in 2017, while Toyota and Nissan’s redesigned models are expected in 2016 or 2017. Fiat Chrysler’s planned all-new Jeep Grand Wagoneer likely won’t arrive until 2019 or 2020, the sources said.

The biggest challenge at Arlington is keeping up with demand among the three brands it serves. Each SUV, over 24 hours, travels about 25 miles by conveyor, from the stamping and body lines to paint and final assembly. The 4.4 million-square-foot plant sits on 250 acres in a city of more than 365,000 people that is known as much for the Dallas Cowboys’ football stadium and the Six Flags amusement park there.

Arlington has been running flat out, building 1,200 vehicles a day over three shifts including many Saturdays.

National Motors supply GM vehicles in Bahrain and report healthy sales in a country in love with big sport utility vehicles and few fuel price concerns. The GMC Yukon has a starting price of BD16,900.

* For further details and to arrange a test drive call 17457100 or call into the Sitra showroom.