How Will UAW Strike Impact GM's Chevy Malibu?

On May 5 the UAW struck GM’s (GM) Fairfax assembly plant in Kansas City, which makes the hot-selling Chevrolet Malibu sedan. The strike comes at a particularly inopportune time as a prolonged work stoppage could severely hurt the tremendous momentum Malibu has built up since its launch in October.

Since launching in Q4, Malibu demand has soared to new highs, surpassing all other models market-wide in January. Record demand has also driven sales to new highs, reaching 16,879 units in April, putting constraints on inventory as supplies remained tight at 36 days. While demand has declined over the past two months it has remained 3 times higher compared to its level last year and it continues to be one of the most shopped models market-wide.

In April, Malibu conversion, defined as the ratio of sales to demand, hit 22%, more than double that of its peak launch demand in January. Malibu conversion has not been this strong since its incentive-laden sell down in Q3 2007. This improvement can be attributed to increased supplies of the new model. It also makes Malibu conversion competitive with segment leaders Toyota (TM) Camry and Honda (HMC) Accord.

Maintaining launch momentum in the face of a strike is critical and requires informed decision making. A prolonged strike may further constrain inventory at a time when supplies need to fall in line with vehicle demand. On top of that, the new Malibu continues to attract significant interest from import shoppers who have increasingly put Malibu on their list of vehicles to shop. Even the slightest hiccup could jeopardize Malibu’s momentum and put to the brakes on what has been one of GM’s most successful launches.

What can GM do? The strike will test GM’s mettle and ability to keep the momentum rolling. Chevrolet must continue its marketing support of Malibu to ensure robust demand once the strike is settled and supplies return to more acceptable levels. If demand falls when inventories return, heavy incentives will be a part of any solution to drive sales.

In the short term, Chevrolet can redirect some Malibu shoppers into Impala. The number of people shopping both models has increased to record highs in 2008. To keep these prospects from defecting to import rivals, Chevrolet should develop programs that incentivize dealers to redirect Malibu shoppers into Impala if the prospect is a defection risk. Better to keep them in the family than to lose them altogether.

Comments

[Mr. Jimmy]

I have lost any remaining respect for the UAW. The union hijacked a critical new GM product in order to advance its own selfish agenda. The writing has been on the wall for a long time: companies and workers can only win by being competitive. GM did it with the Malibu. The union is trying to win by stealing it.