8 years ago in Italy....
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Keep on trucking
More SUVs than cars to boost profits
Jefferey McCracken / Detroit Free Press 21jun00
BRESCIA, Italy -- Fewer cars, more trucks.
That's General Motors Corp.'s production plan over the next several years in North America as the world's largest automaker attempts to regain eroding market share and hit its 5-percent net profit margin goals.
GM acknowledged its North American operations will fall short of that 5-percent goal in 2000. The automaker hopes to reach it next year after cutting back on production of small cars, such as the Chevrolet Cavalier and Pontiac Sunfire, while launching sport-utility vehicles and truck hybrids such as the Chevy Avalanche and the Pontiac Aztek.
Against a backdrop of scenic lakes and green mountains in northern Italy, GM's top brass discussed the automaker's plans, projections and targets for 2000 and beyond with about 65 automotive journalists and analysts at a lavish three-day conference called the GM Seminar.
Among the other targets discussed by President and CEO G. Richard Wagoner Jr., North American Operations President Ron Zarella and numerous other GM executives in attendance were:
Capturing 28 percent of the world's vehicle market for GM and its other affiliates such as Fiat, Saab and Isuzu Motors Ltd. The company and its affiliates currently sell 24 percent of the world's vehicles. GM sells 16 percent of the world's vehicles, a figure the company would like to push to 20 percent.
To sell more trucks than cars in North America next year. This year GM expects truck sales to equal car sales for the first time. Next year's projection is for truck sales to hit 54 percent, increasing to 57 percent in 2002 and 60 percent within five years.
Annual revenue growth of 6 to 8 percent each year, combined with net-profit margins of 5 percent; 15 percent return on net assets and being in the top 25 percent of companies in the Standard & Poor's 500 Stock Index in total shareholder return.
Wagoner didn't give a time frame for all of the goals and conceded GM might not reach all of them, especially some of the financial targets.
"These are very challenging assignments and all of them will be tough to reach. For example, in the area of net income we've made slow progress and we need to do better," said Wagoner, who took over as CEO earlier this month from Chairman Jack Smith.
"The 25 percent of the S&P, for example, is incredibly ambitious. These are visions, really, things I use internally to push our people and tell them we need to drive harder," he said.
GM's North American car-making unit had profit margins of 1.8 percent in 1998 and 4 percent last year. GM's chief financial officer Michael Losh didn't provide a specific estimate for this year.
GM blamed its failure to achieve a 5-percent profit margin in North America on declining vehicle prices and unprofitable models such as the Cavalier, a vehicle on which GM loses more than $2,000 for each sale.
The company said it expected vehicle prices to decline about 0.6 percent this year as it and other automakers offer rebates, lower financing rates and other incentives on vehicles to build or maintain market share.
Rudolph Schlais Jr., president of General Motors Asia Pacific Ltd., said the automaker won't break even in the Asia-Pacific region in 2000 as it had hoped, because of losses in Isuzu's heavy truck operations. These losses will reduce second-quarter earnings by about $100 million, as the company has said previously.
Part of GM's plan to improve profit margins while stemming North American market share losses is to ramp up production of sport-utilities and trucks in 2000 while cutting back on production of several small, midsize and luxury cars.
In 1992, GM offered 73 cars and 34 trucks, a total of 107 models. By 2001, Zarella said the company will offer just 39 car models and 40 truck models.
Among the small and midsize car models to be slashed are the Chevy Metro, the Geo Prizm and the Oldsmobile Cutlass.
"We are aligning production to focus on higher profits. We lose a lot on smaller cars and that's where most of our market-share losses are from," Zarella said.
The introduction of new GM trucks such as the Avalanche -- "one of our most important coming launches" -- should protect GM in the event of a downturn in auto sales, Zarella said.
He added that increased truck sales for GM shouldn't hurt the company's ability to meet federal fuel-efficiency standards, because trucks and cars are rated differently by the federal government. Plus, the company would continue to sell enough small cars to balance government clean-air requirements.
"We need to sell small cars because they attract many young, first-time buyers, plus a lot of women and minorities buy small cars. This segment is heavily weighted toward the coastal and urban markets where GM needs to grow market share."
Zarella said it would be wrong to assume that, because GM was shifting to larger, more profitable vehicles, the company is shying away from pushing its share of the U.S. market back above 30 percent. The automaker captured 27.9 percent of U.S. sales in May, down from 29 percent in the year-earlier month and from about 34 percent in 1995.
Wagoner and Zarella said three-quarters of that drop since 1995 came in the small-car segment in which Volkswagen AG's Beetle captures market share, as are low-priced imports from South Korea.
As for world market share, GM's target of 28 percent would put it far ahead of its rivals, said Wagoner. Ford Motor Co. has about 15 percent of global sales, DaimlerChrysler AG has about 12 percent and Toyota Motor Corp. about 10 percent, he said.
"If we were playing poker, I'd like my hand better than anybody else's." |
