GM Hopes New Cruze Controls Small Car Market

ANN ARBOR, Mich. (AP) — General Motors thinks it can finally sell a good small car. The company, which has a past littered with compact wrecks like the unsafe Corvair and rusty Vega, will roll out the Chevrolet Cruze in September — betting it can attract younger drivers and succeed in the most competitive segment of the worldwide auto market.

ANN ARBOR, Mich. (AP) — General Motors thinks it can finally sell a good small car.

The company, which has a past littered with compact wrecks like the unsafe Corvair and rusty Vega, will roll out the Chevrolet Cruze in September — betting it can attract younger drivers and succeed in the most competitive segment of the worldwide auto market.

GM owners may know that "nothing works like a Chevy truck," but the little Cruze is a big gamble.

"They can't afford to get it wrong," said Michael Robinet, an automotive analyst with CSM Worldwide in Michigan.

The Cruze follows another GM small-car flop, the Chevy Cobalt, which failed because it looks dated, is noisy, has a chintzy hard-plastic interior and doesn't perform as well as competitors. Americans bought just 105,000 last year, compared with about three times as many Toyota Corollas.

GM must also overcome history. Dating to the Corvair in the 1960s, its executives viewed small cars as money-losers because of low prices, high U.S. labor costs and American drivers' hunger for cheap gas and larger vehicles.

"They really haven't spent any time or money on these vehicles," said David Champion, senior director of Consumer Reports' auto testing department. The Cobalt, introduced in 2004, "came out trying to be competitive in that market but always languished behind."

That has to change if the Cruze is to help save GM.

Champion said the car must be as reliable as the Corolla or Honda Civic, the top-selling U.S. compacts. But dependability has been a problem. Consumer Reports gave its coveted Recommended Buy rating to only seven of 30 GM models in its April issue, mainly because of spotty reliability. No GM small cars got the label.

Last month, on the final drive to check for problems before full-scale Cruze production starts, GM engineers were candid with a reporter about past compacts, saying they were mediocre because GM put controlling costs before all else.

As a result, GM missed the small-car boom last decade. Compacts and subcompacts grew from 21 percent of the U.S. market five years ago to 33 percent now. J.D. Power & Associates predicts that will rise to 35 percent by 2013. And small cars are even bigger overseas.

Yet GM drew only 8 percent of its U.S. sales from small cars last year, compared with more than 20 percent for Toyota and Honda.

When the Cobalt was in development in the early 2000s, GM set out just to make it competitive, not a market leader, said Wayne McConnell, a GM engineer in charge of vehicle performance. Ambitious sales targets and plans to attract new buyers were changed after cost estimates were tallied.

Customers noticed, bypassing Chevrolet for Corollas and Civics.

Yet engineers say the new GM leadership has figured out that there's only a small cost difference between mediocre and great. Now they can spend a little more to make a car better, as long as they work with parts companies to control costs. The new management, they said, has learned from recent new models that people will pay a little more for quality.

In the past, the early-generation Cruze might have made it to showrooms, but it was held up last fall by managers unhappy with its performance. Production was delayed from April to August.

Mark Reuss, GM's North American president and former head of engineering, said the six-speed automatic transmission constantly shifted. The tires were noisy, and there was a troubling lag between when the driver stepped on the gas and when the 1.4-liter engine's turbocharger kicked in.

The transmission was redone, the turbo fixed and noises quelled. Reuss now calls the engine and transmission "brilliant," balancing trade-offs between fuel economy and performance. An Cruze Eco version is expected to get 40 mpg on the highway.

Convincing drivers may be difficult, though. When Cassidi Brickner, 31, of Winter Park, Colo., started shopping to replace her aging Honda Civic in the spring, she never considered the Cobalt.

"The exterior appearance seemed like a basic car that didn't catch my attention," she said.

Brickner checked out Chevrolet's small crossover, the Equinox, but decided the interior looked too cheap. She picked a Mazda3 compact because of interior looks and performance.

The good news for GM is that if it had a good compact, Brickner would have looked at it. "I really would have preferred to give an American car my business," she said.

On the test ride along pitted roads north of Ann Arbor, the Cruze was quieter than competitors that GM brought along, and seemed to handle better.

Engineers were happy with it, although tweaks were ordered for minor transmission and noise problems.

"They're really working hard at quality," Consumer Reports' Champion said. "But it's like moving the Titanic."

Champion, who drove an early Cruze, said it handled well, looked nice and had a high-quality interior.

"I thought it was an impressive vehicle," he said.

GM will ask about $17,000 for the base Cruze, a little more than competitors, but GM said it has more standard features. A version with leather seats and other goodies starts around $22,700.

The company is confident it can make money on the Ohio-built Cruze because GM's costs are lower than before bankruptcy.

Total hourly labor costs dropped from $73 in 2007 to $58 now due to concessions from the United Auto Workers including lower pay and benefits for new hires and a union trust taking on health care costs for 700,000 retirees. Debt fell from $53 billion to $14 billion.

GM, which is approaching the one-year anniversary of its exit from bankruptcy protection in July, still owes the U.S. government $43 billion, which it hopes to repay with a public stock offering. The government now owns 61 percent of the company.

The Cruze also will need to attract a growing number of younger buyers, who generally stay with brands for years if they get great small vehicles.

The average age of a Chevrolet buyer is 51, two more than the industry average and 10 above Mitsubishi and Scion, brands with the youngest buyers, according to J.D. Power and Associates.

GM won't reveal sales expectations for the Cruze, but it has to beat the Cobalt. There's room for growth. Toyota sold nearly 297,000 of its Corolla/Matrix model last year.

Tom Stephens, GM head of product development, said the company has tried to make sure the Cruze is better than Corolla or Civic.

"They've got quite a gap that they've got to close just to be competitive, let alone get ahead," he said.