General Motors recently unveiled all-new Buick Encore GX and Chevrolet Trailblazer in China, with both models expected to serve as replacements for the Buick Encore and Chevy Trax sold in North America. But now, based on new information obtained by GM Authority, the outgoing Encore and Trax will stick around for the 2020 model year at the same time as their Encore GX and Trailblazer replacements launch.
2020 Chevy Trailblazer, pictured, is replacing the Chevy Trax
The strategy of continuing of continuing to sell outgoing versions of a model while launching a replacement model during the same year is not new for General Motors. In fact, the Detroit-based automaker just executed the same plan with its full-size pickup trucks, rolling out the all-new 2019 Chevrolet Silverado and 2019 GMC Sierra on the T1 platform while continuing to produce and market the outgoing, last-generation models on the K2 platform. GM followed a similar strategy with the Chevy Traverse and GMC Acadia crossovers, producing and marketing the first-generation Traverse and Acadia as “Limited” models while launching all-new, second-generation versions during the same timeframe for the same, 2018 model year.
2020 Buick Encore GX, pictured, is replacing the Buick Encore, while an all-new (non-GX) Buick Encore will be sold below it in China only
The strategy allows GM to smooth out the steep decrease in sales volume and associated revenues typically associated with launching an all-new model. Instead, production and sales volumes remain at relatively healthy levels thanks to the last-gen model, while rolling out the replacement model with the necessary levels of quality control at the plant. A secondary yet equally important benefit of the strategy is the ability to delay the introduction of incentives on the all-new model, thereby maintaining high transaction prices and associated profits on those vehicles.
While GM will follow this strategy in North America, it will not do so in China – where the all-new Chevy Tracker and second-gen Buick Encore (non-GX) will replace the entry-level Trax and first-gen Encore, respectively.
As for the first-gen Trax and Encore, we’ve learned that both will be getting a few minor changes for the 2020 model year, comprised of new colors and a few other small feature-level changes. We will have more info on those changes and updates in the very near future.
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Comments
Another hair brain exercise by General Motors CEO Mary Barra.. it could be worst as Barra could have decided to sell the C7 Corvette along side the C8 Corvette with the C7 Corvette rebadged as Zora.
Huh? This is actually a good strategy that works very well. And selling the C7 alongside the C8 might not be such a bad idea.
Personally, I feel this is a great way to do this. Dodge (Ram) did this with the new Ram. Ford has done it. Others have done it, and it’s a smart thing to do. Case in point: Let’s say you have a small percentage of people who like the current (Trax or Encore) vehicle but the all new one doesn’t go over well with them. They now have the choice of going with a brand new car in the old body style. They will also pick up buyers who may go into the showrooms for the new one but see the great deals on the “old” body 2020 and go with that one. Then you have people who, like me, don’t want the newest and greatest and want the best deal. That’s where a great deal on a new-old style 2020 comes in. Plus, if the new ones are a popular and they have more demand than cars, keeping the old model for 2020 will protect them against losing clients to other brands.
I say great job on this decision. Smart move.
Hopefully the delay is so the new models can be built at one of GM’s “unallocated” plants.
Well, I hope I am wrong, but if GM has a big new factory cranking them out in China, why would GM need to “reallocate” an old factory here in the US? Remember, these two were “recently unveiled in China with both models to serve as replacements” for the models now sold in North America. Cheaper production costs =’s more profit for stockholders and management. That’s the prime directive.
Barra has pissed off enough politicians and the public with US layoffs and plant idlings. Moving more product in from China into the US would be plain stupid. However that would not surprise me considering the ineptness of GM management.
Exactly!
The 2 new SUV’s are to be made in S. Korea, as per another article here on GM authority. I think it was wrong what GM did to the people/plants here in the states. They spent billions building and tooling factories in Korea, China, and Mexico, I believe the plant closings were planed years ago. Now they have the mfg capabilities setup outside the states, they can close the plants here. GM said it wasn’t because of wages. Really? They paid $20+ hr here but pay $3 hr overseas. Tell me it wasn’t a wage thing.
Alex, I know that you’re in favor of this strategy and you say that it works well. But please help me understand why anyone buying a new vehicle would opt for the older, outgoing model instead of the newer, superior model? Does the price of each vehicle alone make enough of a difference?
This is gonna be an essay, so get ready. There’s a back-end strategy to this approach, which is driven by consumer behavior on the front end.
To explain the back-end most adequately, we’d have to chart out the four primary factors in this scenario on a line graph:
1. Market demand for new model / 2. Market demand for old model
3. Supply of new model / 4. Supply of old model
Plus there’s another factor involved – the incentives.
The generational overlap approach (the one described in the article) typically allows these four factors to sync up in a much smoother fashion than a traditional generational transition. In a traditional scenario, the old model gets discontinued while the new model is introduced. That typically results in very low supply at the retail level of both models (the old model sells out, while production of the new model hasn’t fully ramped, so its sparsely available). All other things being equal, a traditional cut-off approach causes the business to end up losing about six months’ worth of sales volume at a critical point in a vehicle’s launch cadence. So on the charts, you end up with this huge dive and flat line in sales volume for two quarters or so… along with the associated dive in earnings. All that results in a lot of pressure on the plant to build up stock, meaning to ramp up production… and that’s typically either impossible or not a good approach (parts supply is low, quality concerns are high). Overall, it’s not a great place to be.
The front-end looks something like this: most consumers do not purchase vehicles on the manufacturer’s timeline. Instead, they buy on a timeline of their own… one that suits them. OEMs try to impact this with incentives and other offers… but that only goes so far. All in all, average buyers (these are the people that represent the overwhelming majority of customers in the world) don’t really care about a new generation of a vehicle, nor are they aware of it when it gets announced or when it goes on sale (the internet impacts this, to an extent, but not enough). This is significantly different from enthusiasts (like most of the folks here on GMA) – who are aware of the latest and greatest right when it happens, and make plans based on that info. However, “normal” people – those who make up the bulk of car buyers – buy 1) when they can and 2) when they are ready to… not when an OEM announces something new.
So, when a new model is announced, a typical customer usually doesn’t have the luxury of waiting around for that model to actually become available at retail (availability/timetable issue) or doesn’t have the luxury of paying full price for the new model (price issue). The most common examples of these kinds of situations include an upcoming lease termination, a totaled car, a necessity to change vehicle type due to life situation/necessity, or the myriad of other factors that might cause someone to need a new car right here, right now. The generational overlap strategy guarantees that there is a product – typically the outgoing model – that the average customer can buy at the dealer TODAY, typically at a decent discount… but one that’s still profitable for the automaker. Meanwhile, the customer typically doesn’t care that much about the car being the “last-gen vehicle”. They need a car RIGHT NOW, and at a price they can afford.
So, the generational overlap approach gives an automaker/dealer the ability to sell a last-gen car today, even if it’s the last-gen model, something that doesn’t bother the average customer as much as it would bother an enthusiast (not the average customer, not in the majority). Alternatively, the customer could also get the next-gen model… but that model will typically have no incentives on it, and availability will be either non-existent or very limited.
If an OEM stops production of the outgoing model and goes forward only with the new model, that almost always results in a quarter of extremely limited availability at retail, which means minimal sales volume… which means extreme amounts of pressure on the plant and the entire production chain (sourcing, shipping, etc.) to get the vehicles to market as fast as possible, despite that not necessarily being the best approach (due to natural quality issues that present themselves during job one or subsequent ramp).
In a sentence, this is a business process optimization technique allows the OEM to smooth out a new vehicle launch without the huge ups and downs typically associated with this… while enabling it to keep quality of the new product high, and also to sell the new product at sticker, all at a critical time. The result is higher sales volume, and higher pricing power throughput.
The problem I have with it is the outgoing model is cheaper then the new model. Even after the old model is phased out, the new model will still be more expensive. I have a budget, and can pay only so much for a vehicle. I heard the new models are going to be $3k to $4k more expensive. That’s putting them out of my price range. That will make me look somewhere else. I say that, because we just bought a 2018 Encore in Oct. I will be looking at a new car in a couple of years. The Encore was a good buy, and I was thinking of a Trax. I am rethinking that idea. I’ll see how it goes in a couple of years.
It makes a difference to me. For the the new SUVs to be thousands more then the out going SUVs means I will look elsewhere for my next purchase. I got a 2018 Encore because it was in my budget. If it was $3k or $4k more, then it wouldn’t be in my budget. Not all of us are CEOs or IT pro’s. I will buy used if it’s all I can find in my budget.
This isn’t an uncommon practice. Ford did it in 2004 with the F-150, selling the old style badged as the heritage. It makes sense as many consumers are Leary of new models as they tend to have issues for the first year or two of a redesign…
I do not think that Trax and Encore- although they sell well- are as important a vehicle to GM as the Silverado would be. The Ram and F-150 and even FCA minivans are “franchise” vehicles and there may be a case for keeping the old models around for a bit. The Trax/Encore does not have that emotional appeal to buyers as they are basically entry-level vehicles for their respective brands.
“The Trax/Encore does not have that emotional appeal to buyers”
If you’re not in the market for the Trax/Encore, you wouldn’t have any emotional draw to them, and with the exact same validity, I can that the Ram and Silverado have no emotional appeal to buyers who aren’t in their respective segments.
Furthermore, smaller, cheaper, and newer models do not inherently have less emotional appeal than older, expensive, larger models. That kind of thinking is a fallacy, as I can’t point to the Prius and the Chevrolet Impala as two examples of two differently sized cars in two different segments, but with one that has more emotional clout with the buying public than the other….and you and I both know the Impala isn’t that car.
I can also say the same of the 3-series or the Golf, but if you were right, those cars ought to have no emotional appeal because they’re “basically entry-level”.
GM will lose. Millennials, my grandma, fuel economy conscience people could care less about the Silverado. They want small, affordable {$20k}, very firm efficient cars and hatch backs. Hello Honda, Nissan, Toyota, Kia, Hyundai will steal every car customer GM ever had.
Time to unload your GM stock and buy Amazon stock which actually has been rising and will continue to make money for you.
GM stock has outperformed the Dow Jones Industrial average so far this year…
http://gmauthority.com/blog/2019/04/gm-stock-is-outperforming-the-dow-jones-industrial-average/
That’s not the 50% growth experienced by Amazon, but it’s not all doom and gloom either, as you seem to want others to believe.
Also, I would be cautious of the day regulators start sinking their claws into Amazon like they did to the auto industry several decades ago under the pretense to protect consumers and the planet… while ultimately knee-capping the company. Some senators and congresspeople are already talking about regulating Amazon into oblivion.
Regardless, no one here is talking about stocks… but rather cars. Vehicles. Things people drive. Wachu talkin’ about, anyway?
It makes perfect sense for a lot of people not willing to get the new one quite yet. This way they can ramp up dealer supply and get things smoothed out and make money selling both for a time. Not a big problem like many might think.
GM’s profit on these small crossovers is small so they are worried now about ” sales volumn ” by selling the new and old models . There could very well be a production hiccup with the new ones , which happens . But this could backfire , why would you bother buying an old model when new ones are coming and take a bath on the purchase . GM needs to realize customers are alot more savy in their purchase of cars than ever before . GM had a tough 1st quarter and it’s not going to get any easier as prices of new ccars get more expensive and CPO cars look more attractive as there is a glut of off lease cars hitting the market . GM is in trouble ……………..
@android19:
When you say about taking a bath on the purchase of the old model, that’s not always the case. It can, but if (yes, a big if) the new product coming out is a hit, then often the used models of that same car see a residual effect. This can cause the used models to hold value or (in very few cases) become more valuable on a residual value (%) case. Again, this would be if the new model is hot and even more so if the new one goes up in price a good amount.