GM eyes brighter future abroad

By Jorn Madslien
Business reporter, BBC News

Having just recorded the biggest annual loss by an automotive company and offered its 74,000 unionised workers voluntary redundancy, it seems obvious to conclude that the world's largest carmaker by sales is in deep trouble.

We are starting to see some excellent products coming from Detroit, especially from General Motors Paul Ingrassia, co-author of Comeback; The Fall and the Rise of the American Automobile Industry GM and Toyota level in 2007 Union approves health deal

General Motors' (GM) $38.7bn (£19.8bn) losses for the year contrast sharply with arch rival Toyota's performance.

The Japanese giant's net profits for the last three months of the year came in at $4.3bn. For the year to 31 March it expects net profits to total $15.8bn.

GM's title as the number one carmaker remains true only in terms of sales. In 2007 it sold 9,369,524 vehicles - only 3,000 more than Toyota.

But by most other measures, most notably profits, the General has long since been demoted from the top spot.

Indeed, the fact that Toyota has long been the world's most profitable carmaker is reflected in the company's $196bn market value - some 12 times the value of GM.

"The downside for GM is that if you bought GM stock in 2000 when [chief executive] Rick [Wagoner] took over, it was $75 a share," points out Paul Ingrassia, co-author of Comeback; The Fall and the Rise of the American Automobile Industry.

"It's $25 now."

American weakness

GM's home market has been particularly tough in recent years.

As a proportion of GDP, or gross domestic product, the American people are spending less every year on autos.

Hence new car and light truck prices have been falling by between 2% and 4% per year for more than a decade, and given that the US is in danger of suffering a recession there are few reasons to expect the situation to improve.

"The state of the US economy right now we say is at the weakest point since 2001," says GM economist Ted Chu.

In addition, soaring petrol prices have forced a rapid shift in the tastes of drivers, away from big pick-ups and sports utility vehicles, which account for more than half the cars sold by GM and its Detroit rivals Ford and Chrysler, towards fuel efficient alternatives produced by foreign competitors.

Done deal

In spite of this, though, the future of GM - and indeed that of its fellow American carmakers - looks brighter than it has done for years, according to Mr Ingrassia.

Much of this is thanks to a "historic" deal struck with the United Auto Workers union, which he says "has the potential to be a game changer".

Under the deal, GM agreed to pay $29.9bn into a fund that would take over responsibility for its retired workers health care liabilities - indeed, it was largely this commitment that forced GM's 2007 net losses to such an astronomical level.

"Until recently, the Detroit companies could be defined, perhaps with some tongue in cheek, as more pension and benefit funds than car companies," Mr Ingrassia explains.

Following the UAW agreement, "they're free to make sensible, rational decisions", he says.

For instance, it is offering its unionised workers, who currently earn $28 per hour, voluntary redundancy.

This is part of its efforts to replace them with flexible workers who are paid half that, a shift that has been made easier by a single-state recession in Michigan, which contributes to the downward pressure on wages.

Shrinking giants

"The Detroit companies will not dominate in the auto industry the way they once did [and they] will all be smaller enterprises than they once were," predicts Mr Ingrassia.

But they have started making good vehicles again, for the first time in years, and that is a good start for companies eyeing a revival, he observes.

"We are starting to see some excellent products coming from Detroit, especially from General Motors," Mr Ingrassia says, and January's US sales figures back him up.

Sales of GM's new Malibu model rose 200% in January, compared with sales of its predecessor a year ago, and retail sales of its Impala rose 44% during the month, according to Ed Peper, head of GM's Chevrolet subsidiary.

Toyota, meanwhile, has released sales data that suggests that it is not invincible either.

"In our particular case, our sales are geographically hampered because 25% of our business is California and Florida, and those are probably the hardest hit markets in terms of housing and everything else," says Don Esmond, vice president, Toyota Motor Sales USA.

Global markets

But the most important wind in GM's sail in the years ahead will not come from America, but from the world.

"It seems like the rest of the economies in the world have been separated from the US economy and are surging ahead," says Mr Chu.

"Our outlook for the global economy and industry has never been better.

"We've never had it this good. In 2007, global vehicle sales exceeded 70 million units for the first time in history," he adds, up from 57 million in 2000.

"By 2012, we believe global sales could reach as high as 85 million units," he adds.

Outside North America, GM is not only driving fast-rising sales by building new factories in countries where labour is cheap compared with the US.

It is also profitable, and in all regions except Europe its profits are rising fast. Indeed, even in Europe the American giant is making profits.

"We are very, very optimistic about the future," insists Mr Chu.