General Motors Co. is making a big bet on its smallest car, pricing the subcompact Chevrolet Sonic at a level comparable to well-established imports.
Due out this summer, the car will start at $14,495, or $2,500 more than the model it replaces. The higher prices reflect a car loaded with features including 10 airbags in hopes that customers will pay up.
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Reuters
GM North America's president, Mark Reuss, introduced the 2012 Chevrolet Sonic at a press event in January.
GM is introducing the U.S.-made Sonic as its entry-level car, a category where consumers go for low prices and the auto maker has been forced to rely on low prices to compete with asian rivals. The Sonic replaces the Chevrolet Aveo, built in Korea.
If the plan fails, GM could find itself stuck with a money-losing car plant. As part of a 2009 deal with the United Auto Workers union to slash costs as GM headed into bankruptcy protection, the company agreed to become the first—and only—manufacturer to build a subcompact in the U.S. It wouldn't disclose production for the vehicle, but says it will run two shifts a day at the Sonic's Michigan plant.
Ford Motor Co. at one point looked at making a subcompact car in the U.S. but ruled it out, according to people familiar with the matter. Even at GM, some top executives who joined after bankruptcy questioned the logic of the move, people familiar with the discussions said. Last year, the UAW agreed GM could staff the factory with lower-wage workers in a bid to make the plant profitable.
"There is going to be a lot of scrutiny around this car and GM needs to hope that customers accept this [higher] price point," said Bill Visnic, an analyst for car-research firm Edmunds.com. "Everybody is trying to determine what people will pay for a subcompact car now."
He thinks the price—less than Honda's built-in-Japan Fit subcompact but slightly more than Ford's Mexican-made Fiestas—will sit well with U.S. consumers.
Some dealers think the strategy can work. Cost and fuel economy are typically the top priorities for Aveo buyers, said Mark Maybee, sales manager at Spitzer Chevrolet in Lordstown, Ohio. But he believes even deal seekers are willing to pay more for a better car. On Friday, he sold an Aveo for $16,255, Mr. Maybee said. "Customers are starting to realize that they can get a better car," he said.
GM says Sonic can be the first successful U.S.-made subcompact because consumers are demanding more and willing to pay more for small cars with good fuel economy, said Margaret Brooks, marketing director for GM's small cars.
"We want people to show up and actually be able to leave the dealership with a car that costs $14,495," Ms. Brooks said. While the Aveo's starting price was under $12,000, customers bought models costing $15,100 on average, says Edmunds.
The pricing strategy worked for GM's Chevrolet Cruze compact car. The Cruze is a size larger than the Sonic, and replaced the budget Chevy Cobalt.
With the Sonic, GM faces an even bigger challenge. When GM launched a redesign of the Aveo in 2007, a key bragging point was that it was the lowest-cost car sold in the U.S. It had crank windows, undersized tires and lacked air conditioning and anti-lock brakes.
So far this year, Aveo's average selling price is $15,103, according to car shopping site Edmunds.com. Only the Accent, made in Korea by Hyundai, has been selling for less than the Aveo, with consumers paying an average of $15,062, according to Edmunds. Ford's Fiesta and Honda's Fit sell for more than $17,200 each.
Write to Sharon Terlep at sharon.terlep@wsj.com
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