If you follow the automotive media at all, it was hard to miss the excitement around Sunday's debut of the all-new Chevrolet Corvette, only the seventh all-new Vette in the model's 60-year existence.
A new Vette is always a big deal among car enthusiasts, and General Motors' (NYSE:GM) flagship sports car is sure to be one of the biggest stars of this week's North American International Auto Show when all is said and done.
Yet this is a car that sells in tiny numbers. The profit it generates is barely a blip on GM's bottom line. Does it really matter to investors?
I think it does. Here's why.
GM is still a work in progress
Since its bankruptcy, GM has been working full-tilt on a major – major – overhaul of its global product line, and of the processes it uses to develop new cars. Most of GM's new-vehicle development programs were slowed way down or halted altogether during the company's downward spiral into bankruptcy. And the ones that actually bore fruit during that time reflected GM's old approach to product: Cars that were good enough, mostly, but not great.
GM emerged from bankruptcy in 2009, and new management under CEO Dan Akerson has pushed for big upgrades across the board. But the effects of the development slowdown are still being felt today, because creating a new car or truck from scratch is a time-consuming process.
From first design to first car produced rarely takes less than 30 months even for the most efficient automakers, and can often take three years or more – especially if complex new engines or technologies are involved.
Why Ford is so successful right now
Some competitors were able to fund new products even through the worst of the economic crisis, notably Ford (NYSE:F), which borrowed over $20 billion in 2006. You can see the results in dealerships today: Ford's top models like the Fusion and Focus are fresh products, among the best in their respective classes. They're selling briskly without big discounts, which is why Ford has had fat margins lately.
GM's product line (and its margins), on the other hand, is still hit or miss. That's why GM isn't making as much money as most of its rivals. Some of its products date to before the bankruptcy, and some were started before the bankruptcy and finished more recently. The latter includes some great vehicles – Cadillac's award-winning ATS sedan, for one – and some not-so-great ones, like the current Chevy Malibu.
So what's the significance of the Corvette? It's the first new GM vehicle that was developed start to finish after the bankruptcy – and it's the start of a big wave of new products that GM will introduce over the next couple of years.
Why the new Corvette deserves attention
The Corvette will never be a big deal for GM's bottom line. Even if the new model doubles the sales of the outgoing car, GM will sell more pickups in a good month (or even a not-so-good month) than it will sell Vettes in a year.
But it's important to investors because it'll tell us where the company is, product-wise. If the new car turns out to be really good, we can have some confidence that the products that will follow it – some of which are very important, high-profile vehicles – will also be really good.
So is the new Corvette good? Your humble Fool knows a thing or two about sports cars, but the truth is, I don't know about this one yet. It sure looks good: It's visually striking (as it should be), it has an impressive list of high-tech features, and important weaknesses in the previous model – in particular, the old car's awful Tupperware-like interior – appear to have been thoughtfully addressed.
But the proof of the pudding will be in the eating – or in this case, in the driving, once professional reviewers get hold of production examples to road test. Those reviews will appear over the next few months, with the first new Vettes due at dealers in late spring. If they're good, that bodes well for GM's prospects over the next few years. And if not? Watch out.