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Holden warms up Cruze for local battle

Ready for battle: The Holden-designed Cruze five-door hatch will give the local car-maker another weapon in its small-car market expansion.

Small car battle looms as Holden factory tools up for Cruze production

14 Sep 2010

IN the United States, where General Motors’ Cruze is only now being rolled out into showrooms, one of the television commercials for the Chevrolet-badged small car begins: “Dear Corolla ...”.

The ‘open letter’ to Toyota’s international best-seller then goes on to point out all the features that come standard with the Cruze, compared with the Toyota small car.

The rather blunt ad shouts GM’s intentions for Cruze: go after the world number one, without gloves.

In Australia, where Cruze has been shipped in from South Korea under Holden badges since the middle of last year, the imported model will give way to a locally made version, in sedan, five-door hatchback and wagon guises, from the first half of next year.

13 center imageFrom top: Holden Cruze sedan, Cruze Wagon and Toyota Corolla.

When it begins rolling off the production line at Holden’s Elizabeth plant in South Australia, the Cruze will become the first Australian-built small car since the demise of the Aussie Toyota Corolla more than a decade ago.

It also will be Holden’s first Australian-built four-cylinder car since it killed local Vectra production in 2000, bringing the curtain down on a series of Holden-made four-cylinder cars such as the Isuzu-based Gemini (1975-86) and Opel-derived Camira (1982-89) that ultimately failed to ignite either public passion or Holden’s bottom line.

Plenty of other companies have tried small cars over the years, including Nissan, Ford, Toyota and Mitsubishi, but all have reverted to imports, beaten by the wafer-thin profit margins caused by going head-to-head with small-car imports built in comparatively low-cost factories with huge volumes and, hence, sharp economies of scale.

Ford Australia, which once dominated small-car sales with its Laser when it was built in Sydney, looked at building its next-generation Focus in Australia until it got cold feet last year and ran away from the plan.

However, Holden is all set to give it another go, using large quantities of imported parts from South Korea to help keep the costs in check.

Like a football player before a game, Holden is warming up for the forthcoming battle, pulling out all the stops with advertising for Cruze this year to build sales momentum and badge recognition ahead of the switch to local production.

It is also clearly positioning the Cruze as an Australian car even before it is, milking the huge brand equity of its ‘Australia’s own car’ image in this country.

This is helped by the part played by its own designers in fashioning the five-door hatchback version of Cruze that is about to go public at the Paris motor show before going into production here a few months after the sedan, in the second half of 2011.

And the sales momentum is building. From a standing start last year, Cruze has garnered about 12 per cent of the small-car segment, peaking last month at 13.5 per cent.

While 12 per cent is nothing to write home about in any segment, it is lot better than 9.3 per cent, which was Holden’s small-car share last year, but a long way short of 17.5 per cent, which was the red brand’s chunk of the small-car action back in 2001 when the imported Astra was at the peak of its powers.

More interesting for Holden is that the gap between Cruze and the ageing market leader Corolla has been narrowing.

Just two years ago, Corolla’s segment share was north of 21 per cent, even hitting 26 per cent in December 2008. Year to date, Corolla is sitting on 16.6 per cent share, just 4.5 percentage points ahead of its new GM rival (although Corolla jumped to above 19 per cent last month).

Of course, everyone else in the market – including Hyundai and Mazda – is gunning for Corolla in the biggest and toughest segment in the car industry.

But if Holden has any aspirations of regaining overall market leadership, it must revive its four-cylinder car fortunes, which have sometimes waxed but mainly waned over the past two decades.

And not only in the small-car segment specifically, but also in the mid-sized four-cylinder market, where its defunct Vectra once held 18.1 per cent share when it was locally assembled in 1999 – coincidentally, on the same production line that is about to pour forth Cruze.

Vectra hit the skids once the decision was taken to kill unprofitable local production and resume importing Holden mid-sizers in 2000, with Holden’s slice of that segment sliding down to 2.2 per cent in 2006.

Since then, the bland Korean-built Epica has lifted Holden’s mid-size fortunes only marginally, to around 4.0 per cent of the segment.

The Holden Cruze, however, at least partly straddles the mid-sized segment, being as large in most dimensions as the early Vectra, and positively huge compared with the old Gemini.

Holden believes this ‘right size’ is a big plus for Aussie buyers, so much so that many within Holden believe the Cruze has the potential to become its best-selling car once it has its full three-model line-up and new engine range firing on all four cylinders.

That would mean toppling Holden’s own current top-selling car in the country, the Commodore, which is also built at Elizabeth. For Holden sales and marketing executives, it is a case of ‘may the best car win’.

Fleet buyers looking for a cheaper, locally made four-cylinder car with greener credentials might well make the difference, especially if fuel prices spike.

Cruze’s ‘Australian-made’ tag will not go unnoticed by government fleets with ‘buy Australian’ policies, either, especially as the federal government stumped up cash to help Holden get the Cruze project across the line.

As fleet sales are one of Toyota Corolla’s strengths, this battle is going to be one to watch over the next few years.

But Toyota did not get to be number one in the world – and in Australia – for nothing, and the planners will be working overtime at Toyota Australia’s Taren Point bunker in Sydney to ensure that Holden walks into a door or two ...

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