GM's next big SUVs to carry cost premium to meet fuel-economy rules

Analysts say GM will need to look at powertrain options so they don't detract from the overall fuel economy on its next generation large SUVs.

General Motors' next generation full-sized SUVs likely will carry a cost premium to meet new fuel-economy regulations, an analyst says.

GM said Thursday it will invest $331 million to retool its Arlington, Texas, plant to build the redesigned Chevrolet Tahoe and Suburban, GMC Yukon and Cadillac Escalade. The plant builds the current generation of those vehicles.

Although the automaker did not provide a time frame, industry sources say the SUVs will debut in 2013 as 2014 models.

"They will be more expensive to engineer and build because of the need for lighter weight materials," said Tracy Handler, an analyst at IHS Automotive. "I expect prices to be higher."

The fate of GM's full-sized SUVs had been in doubt due to high fuel prices and stricter government rules on fuel economy and emissions.

Overall, large SUV and SUT demand has plummeted after hitting more than 1 million units in 2003 and 2004, according to the Automotive News Data Center. Last year, U.S. sales of the Lincoln Navigator, Toyota Sequoia, Chevrolet Avalanche, GMC Yukon XL and other full-sized SUV and SUTs totaled 372,437units.

While volumes have dropped, analysts say the segment remains profitable.

At one point over the past year or so, industry sources said GM's full-sized SUVs would be dropped, replaced by a range of vehicles developed on GM's front-wheel-drive Lambda platform.

"We have customers who need full-sized SUVs for work and play," Chevrolet spokesman Mike Albano said. "We will continue to provide a vehicle in that segment."

Automakers and regulators are debating a proposal initiated by President Obama last October calling for corporate average fuel economy of 47 mpg to 62 mpg by the 2025 model year.

The latest proposal would start with the 2017 model year, with final CAFE targets to be determined. New federal fuel economy and emissions rules took effect Jan. 1 that require automakers to achieve a CAFE of 35.5 mpg by the 2016 model year.

Handler did not expect GM to drop its full-sized SUVs.

The large SUV "is important for the person who wants to tow, especially in Texas where they want it big. I can't see them abandoning that market," she said.

But she said GM "will need to look at powertrain options so they don't detract from overall fuel economy."

The 2011 Tahoe 1500 and Suburban 1500 achieve 15 mpg city/21 highway for a combined average of 17 mpg. GM also offers a gasoline-electric hybrid powertrain on some large SUVs to improve fuel economy.

Last year, Chevrolet sold 75,675 Tahoes and 45,152 Suburbans. During the first four months of 2011, Tahoe sales are up 11 percent and Suburban sales are down 13 percent.

As recently as 2006, however, GM sold 161,491 Tahoes and 77,211 Suburbans.