Hummer

Brief History

The beginnings of AM General, producer of the Hummer H1 and H2 can be traced back to 1903. A company named The Standard Wheel Company of Terre Haute Indiana originally built bicycles, however, after the invention of the combustion engine, they felt it would be in their best interest to begin building automobiles, and created a division named Overland Automotive.

John North Willys purchased Overland Automotive from The Standard Wheel Company in 1908 and renamed it Willys-Overland Motors. In 1940 Willys-Overland Motors became the creators of Americas first four-wheel drive ј ton utility truck. By 1941, they began a relationship with the U.S. government by winning a contract to build 350,000 Jeeps for the war effort.

In 1953, Henery Kaiser who renamed it, Willys Motors, purchased the company. Under the new ownership, the M274, a light weapons carrier, was created and put into production. In 1963 Willys Motors was again renamed and by 1967 the production of government vehicles became so profitable that Kaiser Jeep Corporation created a special division to solely produce them. It was this division that was a direct organizational forerunner to the AM General Corporation.

American Motors Corporation purchased the Kaiser Jeep Corporation and incorporated it as AM General, a division dedicated to fulfilling the transportation requirements of the U.S. government. From 1971 to 1979 AM General was heavily involved in research and development of vehicles for the U.S. government. They tested existing vehicles and produced and tested their own vehicles. They produced over 125,000 vehicles ranging from light armored utility vehicles to 20-ton transport trucks. Near the end of this period AM General began preliminary work on the M998 Series Humvee.

In 1981 AM General, Teledyne and Chrysler defense were awarded prototype contracts to determine who could build the ultimate all terrain war/peace time vehicle. By 1983 it was obvious who created the best vehicle and AM General won a 1.6 billion dollar contract to build 70,000 Humvees. It was at that time that the AM General once again changed control when it was purchased by LTV Corporation and received another 1 billion dollar contract to produce 330,000 Humvees.

During the Gulf war in the early 1990s the Humvee was praised for its versatility, agility and ability to meet all demands in any condition. It was during this time that the Humvee truly received its due recognition as the ultimate off-road machine. The Army's stringent specifications for a light armor vehicle were achieved and even surpassed, when AM General produced the vehicle under weight and before deadlines. The Humvee offers exceptional speed, mobility, agility, and is built upon a multi-purpose platform, allowing it to accommodate a broad range of configurations and customizations.

In 1992 the Renco Group Inc. purchased AM General from LTV Corporation and it responded to the Humvee's notoriety by building the civilian version of the Humvee called the Hummer. The Hummer was designed for off-roading. The vehicle could easily drive through water up to 30 inches deep and climb almost vertical, rocky surfaces. It was AM General's ability to build this high quality, innovative product that made them attractive to General Motors.

In 1999, AM General sold the Hummer name and rights to market and distribute Hummer vehicles to General Motors. AM General and General Motors finalized an agreement where by GM acquired exclusive global ownership of the Hummer brand name. GM assumed responsibilities for marketing and distributing the Hummer vehicles to retail and commercial customers. AM General retained the right to market and distribute the Humvee for military applications. Under the agreement AM General would continue to produce both the H1 and H2 models and also assume production of GM's 6.5-liter diesel engine. They were also responsible to supply GM's internal parts distributor with service engines for a period of 10 years.

Important Characteristics of the Automotive Market

Before delving into the differences between the older H1 and the newly introduced H2, it is important to look at some of the developing characteristics related to the automotive industry. Many of these characteristics have an impact on the types of vehicles purchased. In addition, they also illustrate some interesting aspects of consumer spending on these vehicles.

The purchase of a vehicle is likely one's largest cash outlay aside from the purchase of a residence. With this in mind the decisions one makes before purchasing a vehicle can be quite detailed. Even after the initial purchase, the average American continues to spend a significant portion of his or her income on vehicle-related expenses such as repairs, insurance, maintenance and fuel. The U.S. department of transportation calculated that, on average, an American individual spends just under 19% of their annual income on transportation-related expenses. As per the U.S department of commerce 2001 population report, the average U.S. income before taxes was $42,695. For simplicity, let's take a 30% tax rate, leaving around $30,000 disposable income after taxes, the resulting average spent on transportation-related expenses is $5,700. This amount is important because it excludes the average American from being able to afford even the new, more affordable H2 Hummer. This should come as no real shock as the target market, which will be discussed later on, is in the higher income brackets.

Fuel economy is a rising area of consumer concern due to the rising cost of petroleum products and the increased emphasis regarding emissions. Over the past five years we have seen significant price fluctuations with an overall substantial increase at the end of the period.

Regarding the two vehicles in question, the H1 runs on diesel while the newer H2 runs on unleaded gasoline. Noting the increased petrol prices, a vehicle's mileage for both city and highway driving based on miles per gallon is becoming an increasingly important consideration when purchasing a vehicle.

Annual Average U.S Petroleum Prices

Projected

1996 1997 1998 1999 2000 2001 2002 2003

All Grades 1.25 1.24 1.07 1.18 1.53 1.47 1.39 1.65

Regular Unleaded 1.20 1.20 1.03 1.14 1.49 1.43 1.34 1.62