Auto Maker Is Set to Unleash
Seven-Passenger Wagons;
Tweaking SUV Gas Mileage

Under pressure to revive sales, General Motors Corp. (NYSE:GM - News) is about to unleash an important element of its turnaround effort: A slew of new, better-looking vehicles.

But in a market where the big players are launching new models almost every month, Chief Executive Rick Wagoner and his product czar, Vice Chairman Robert Lutz, face a stiff challenge to persuade investors that the cars, trucks and crossovers GM has coming can reverse a trend that has taken GM's U.S. market share to 26% today from 47% in 1976.

Although many of its new models won't hit showrooms for months, GM is eager to build some buzz. As its annual shareholders' meeting opens today, GM is under pressure to discuss how it plans to recover from a $1.3 billion first-quarter loss in North America. Mr. Wagoner is expected to highlight the new-model blitz as part of a broader effort to reassure investors.

Among the new GM models preparing to launch in the next 30 months: Replacements for the current Chevrolet Tahoe, GMC Yukon and Cadillac Escalade large sport-utility vehicles. The replacements will be an early test of Mr. Lutz's new strategy: Sales of outgoing models -- including the three-vehicle Escalade family -- have tumbled more than 25% in the first five months of this year from a year earlier. Some analysts have blamed that decline on rising gas prices and a shift in consumer tastes away from big SUVs built on truck frames. GM executives have argued that a significant cause of the decline is that the current Chevrolet and GMC models are old.

The new models will get slightly better mileage, though, averaging around 20.7 miles a gallon in combined city and highway driving, up from a segment-leading 19.8 miles a gallon today.

The auto maker also plans to roll out a new lineup of seven-passenger crossover wagons in an effort to be more competitive with rivals such as the Honda Pilot, Ford Freestyle or Chrysler Pacifica, as well as an almost-total revamp of the Saturn showroom, built around sportier new sedans derived from GM's European Opel models and new crossover models.

In contrast to several of the vehicles GM launched in the past year, many models in the coming crop replace weak or aging entries in high-volume -- and in the case of large SUVs, high-profit -- segments. Executives are betting the new vehicles will start to dispel GM's reputation for dull design.

As far as consumers are concerned, the new vehicles are the most visible signs of GM's effort to pull itself out of its current tailspin, which has resulted in its debt being downgraded to junk status. Investor Kirk Kerkorian, whose bid to buy another 28 million GM shares at $31 a share is scheduled to expire today, also is placing a big bet on the success of GM's new vehicle strategy.

GM has disclosed or hinted at various elements of its product plan piecemeal over the past several months. For example, last year at auto shows, the company displayed a concept vehicle called the Buick Centieme, designed to demonstrate the design direction for a future generation of midsize crossover wagons that would replace vehicles such as the current Buick Rendezvous and Pontiac Aztek in the next two years. GM has said it will launch a total of 14 new or redesigned crossovers of various sizes by 2009.

To spur sales, the auto maker also recently took the unusual step of offering its employee discount to the general public.

It isn't the first time GM has promoted a broad array of new models all at once. The company followed the same strategy in the 1990s, following new-product droughts that precipitated profit setbacks then. So far, GM hasn't been able to reverse the long-term, downward trend in U.S. market share.

One reason: No matter how many new models GM has, rivals have more. GM, for example, has lagged behind Japanese rivals Toyota Motor Corp. (NYSE:TM - News) and Honda Motor Co. (NYSE:HMC - News) in exploiting the fast-growing demand for five- and seven-passenger midsize crossover wagons. Honda's Pilot crossover has outsold GM's rival Buick Rendezvous by 52,227 vehicles to 27,114 vehicles this year.

GM also has largely missed out on the revival of rear-wheel-drive, muscular American cars led by the Chrysler 300C and Ford Motor Co.'s (NYSE:F - News) new Mustang, which sold 19,721 cars in May, compared with sales of just 1,093 for GM's Australian-made muscle car, the Pontiac GTO.

Mr. Wagoner, who took over as head of GM's North American operations in April, is expected to explain to shareholders at today's annual meeting his four-point plan for fixing GM's $114-billion-a-year North American auto business. In addition to introducing new models, the plan includes overhauling GM's U.S. marketing strategy and new efforts to cut costs, particularly GM's estimated $5.6-billion-a-year bill for U.S. health care.

The reception consumers give to the vehicles GM plans to launch -- such as the new Pontiac Solstice, a low-volume roadster designed mainly as an image car for the Pontiac brand, the new Escalade, and longer term, redesigned versions of the Cadillac CTS and Chevrolet Malibu -- will likely be viewed as a report card on Mr. Lutz's crusade to make GM cars less dowdy. GM has been promoting the Solstice as a harbinger of Pontiac's rebirth as a performance brand. In the long run, it will be more critical for GM that more buyers get excited about high-volume vehicles such as the Malibu or the re-engineered GMC Silverado pickup.

Mr. Lutz has attacked a wide array of GM practices that tended to push GM's designs in conservative directions. New vehicles that have shown some of his influence have tended to have sides that tilt inward, toward the center of the roofline. The object is to avoid a car that looks like a cinderblock on roller skates.

Mr. Lutz also has pushed for narrower gaps between body panels and has demanded better-quality buttons, chrome and wood grain on dashboards.

To improve the mileage in some of its big SUVs, GM has said it will use technology such as "displacement on demand," which shuts down two or four cylinders of a truck's V-8 engine during highway driving, to improve fuel economy.

In 2007, GM has said it will start offering hybrid gas-electric drive systems on its large SUVs that will boost fuel economy 25%.