GM is 'betting the ranch' on money-making sport-utility vehicles

General Motors, seeking to capitalise on demand for its largest sport-utility vehicles, is increasing production of the Chevrolet Tahoe and other redesigned sports utility vehicles at three plants.

GM will build as many as 12,000 more Tahoes, GMC Yukons and Cadillac Escalades than originally planned this year at plants in Arlington, Texas; Janesville, Wisconsin; and Silao, Mexico, said GM spokesman Dan Flores.

Flores wouldn't say how many of the SUVs Detroit-based GM, the world's largest carmaker, plans to build in 2006.

"GM is kind of betting the ranch that they can sell SUVs in an environment of $2.50-a-gallon gasoline," said David Healy, a Burnham Securities Inc. analyst in Sierra Vista, Arizona.

He estimates the company makes a pretax profit of about $US15,000 on each of the trucks.

GM had losses of $US10.6 billion in 2005 as its US sales declined and its share of the US market fell to a record low.

Chief Executive Officer Rick Wagoner sped up the introduction of the redesigned trucks in the past year, saying their success was critical to the company's future.

"It reaffirms our belief that the full-sized SUV segment is not dead yet," said Rebecca Lindland, an analyst at Global Insight Inc. in Lexington, Massachusetts, who had estimated GM would build about 423,290 of the trucks in 2006.

Last year, GM built 415,143 of the earlier versions of the SUVs, Lindland said.

Sales of the 2007 Tahoe may increase to about 10,000 this month, from 6391 in February, said GM spokesman Jeff Kuhlman.

Total sales for all of the redesigned SUVs, including the Yukon and Escalade, may climb to about 15,000 in March from 9304 in the same month a year ago, he said. The 2007 Tahoe is selling for about $US40,000, Kuhlman said. The average transaction price for a 2006 Tahoe was $US33,541, according to J. D. Power & Associates, which tracks pricing.

The increased production of the 2007 models will probably

add about $US180 million to GM's pretax profit and about $US480 million to revenue, Healy said.

GM's previous lineup of full-size SUVs and pick-ups contributed $US51 billion in revenue last year, about half of North American revenue and 26 per cent of total sales, he said.

Janesville workers were told that they will increase production to about 1130 vehicles a day beginning in late June, from 1100 now, said plant spokeswoman Carolyn Markey.

Employees at the Arlington factory were informed two days ago that production will increase to about 1018 a day from 982, said spokeswoman Wendi Sabo.

The company said last month it is cutting spending on the next versions of its Chevrolet TrailBlazer and GMC Envoy sport utility vehicles, which are smaller than a Tahoe, as buyers of that type of truck switch to SUV models that are more fuel efficient and drive more like cars.

The carmaker is scaling back on the mid-size models based on trucks, now the best-selling SUV segment, as it prepares more car-like SUVs.

- BLOOMBERG