General Motors Death Watch 177: The World is Not Enough

By Paul Niedermeyer
May 15, 2008 -

According to perceived wisdom, GM's overseas ops will keep the corporate mothership afloat. Some 64 percent of first quarter sales came from outside our borders, as well as ALL of GM’s profits. The General claims that foreign markets will account for 75 percent of its profit by decade’s end. So why not just shut down the NA operations and firewall the rest as “Global Motors?” A closer look at GM’s three international units tells the tale.

GME (Europe) covers the EU15 countries, Eastern Europe and Russia. There might as well be a reverse iron (lead?) curtain when it comes to GM’s sales growth and market share in Europe; it’s all happening on the eastern side.

GM’s woes in Western Europe closely mirror its death-rattle in the US. In fact, Opel/Vauxhall has pulled off a perfect imitation of GM’s US market share free-fall: a 30 percent share drop from 1995 to 2007. Opel’s market share has plummeted 55 by percent in its German home base. The Astra, the perennial number two behind VW’s Golf, now struggles for fourth or fifth place.

GME reported a loss of $514m in 2007, despite “strong demand for GM [Chevy-badged Daewoos] vehicles in Ukraine, Greece and Russia, where sales doubled”. But GM’s recent losing bid (to Renault) for Russian automaker Autovaz puts a crimp on future growth. And Toyota has just opened a modern plant in St. Petersburg.

But GM is throwing €9b at Opel, hoping (once again) that new models will turn things around. Opel’s brand image has morphed from boringly reliable to reliably boring, It’s caught in the pincers of the “premium” brands above it and discount brands below.

Thanks to Latin America’s bubbly economy, GM’s bright spot (for the moment) is GMLAAM (Latin America, Africa and Middle East). But dark clouds are already on the horizon (Argentina’s inflation is up to 25 percent again).

Brazil is GM’s third largest market. Because of numerous constrictions on the market, it has all the symptoms of a seller’s market bubble. Chevrolet’s Vectra (Cobalt) goes for $48k. No wonder GMLAAM booked a $1.3 billion profit in 2007.

But the Latin fiesta won’t last (it never does). Growth is slowing, and the competition is moving in. Toyota sees a 50 percent rise in sales. Hyundai is building a plant. And two Chinese firms are setting up shop in low-cost Uruguay to export to Brazil and Argentina.

That brings us to GMAP (Australia-Pacific). GM’s Australian Death Watch has been well documented here. But then there’s China, and as we all know, when it comes to car sales growth the East Glows. Or not.

GM has minted serious coin on their Buicks; $65k for each Park Avenue sedan. But GM’s China-fest is petering out. GM’s current growth is stalled at 7.4 percent. Meanwhile, the competition racks up big gains: Toyota: 62 percent, VW: 33 percent, Hyundai: 64 percent. Chinese drivers are shunning the aging Buick Excelle (Daewoo) in favor of Toyota’s Camry. But GM has a plan! Rushing our unloved (and now unbuilt) Enclaves and Escalades to China.

China’s most explosive period of growth is over, forever. The stock market is down 40 percent, and the real estate bubble has popped. As the car market turns into a buyer’s market, Chinese consumers will have greater choice in cost, quality, economy and reliability. And this is where GM faces a huge downside, not only in China, but in every other gold-rush market around the globe.

GM’s developing world cars are almost exclusively from Daewoo. Aveo’s US EPA numbers are 26 percent worse than the Yaris, and in China, it’s down 47 percent against a Lifan or BYD. Auto analyst, Jia Xinguang, says that “the Toyota Vios (Aygo) and Yaris will soon snap up a large share and dominate the small car niche”. Sounds familiar, once again.

In the hot global CUV market, the Chevrolet Captiva/Saturn Vue from Daewoo is uncompetitive. It weighs 4325lbs and has an EPA rating of 16/22, compared to 3500lbs for a Honda CRV with 20/26 EPA rating.

GM’s losses in Australia and the increasingly competitive market in China are showing up in the earnings statements. Whereas GMAP booked a $1.2b profit in 2006, in 2007 that shrank to $744m.

GM’s global expansion and profits were the result of two decisions made decades ago: to hang on to its roller-coaster Brazil operations, and to be an early pioneer in China. When these two are/were on the upswing, GM enjoyed oversized profits due to an imbalance in supply and demand. But as these and other hot-spot markets mature, GM will face the same final exam that it does at home: are its sub-compact (Aveo) and compact (Cobalt, Astra, etc.) products truly competitive with the best in the world?

GM may not have jumped the overseas shark yet, but it’s on the ramp.

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42 Responses to “ General Motors Death Watch 177: The World is Not Enough ”

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Robstar :
May 15th, 2008 at 8:00 am

My wife’s aunt works for a GM factory outside of Sao Paulo. She makes some nice $$$. She has a gorgeous house in a great neighboorhood, and a farm in the country as well. Her husband works for “Volks” (as it’s called in Brazil) & makes some nice coin as well.

With the weakness of the dollar, hopefully cars over there will get cheaper. A small CUV over there is $40+G’s.
Jeff in Canada :
May 15th, 2008 at 8:55 am

“GM’s losses in Australia and the increasingly competitive market in China are showing up in the earnings statements. Whereas GMAP booked a $1.2b profit in 2006, in 2007 that shrank to $744b.”

I think that last value should be $744m” because the company would be in great shape if their profits wents from $1.2b to $744b!
Robert Farago :
May 15th, 2008 at 8:57 am

Jeff in Canada:

I think that last value should be $744m” because the company would be in great shape if their profits wents from $1.2b to $744b!

Right you are. My bad. text amended.
geeber :
May 15th, 2008 at 10:02 am

Paul Niedemeyer: But GM is throwing €9b at Opel, hoping (once again) that new models will turn things around. Opel’s brand image has morphed from boringly reliable to reliably boring.

My relatives are German, and my cousin works for Opel…one thing that HAS improved at Opel is reliability. The company had serious quality problems in the 1990s, but the cars are getting much better. They do, however, still seem to be boring.
Stein X Leikanger :
May 15th, 2008 at 10:10 am

While at a conference today discussing globalisation I received two press releases from Toyota to my phone.

One stated that Toyota had now sold just over 100.000 Prius Hybrids in Europe.
The other that they had now sold over 1 million of the beasts worldwide. And we began discussing this, relative to GM. Why didn’t GM get behind the move to smaller less gas hungry cars sooner?

One major culprit is the short term perspective financial investments market, which is demanding results NOW! The Prius and the Hybrid Synergy Drive (which is really what’s exceptional about the car) came about because Toyota allowed itself a long view perspective on automotion. GMAC, starving suppliers, building vehicles on ancient platforms and going for the easy profit proposition landcruiser today — all loaded up with insane incentives - came about because Wall Street is blind to long term.

Ironically, and as reported in Newsweek recently, Exxon was punished by the market after delivering its strongest quarter ever. Why? It wasn’t as strong as expected.
You try running a car behemoth such as GM against such irrational expectations. Things won’t improve for GM, or any other major carmaker, as long as they are forced to obey the whims of irrational investing. How to change that? It will be forced upon them by market realities …
BostonTeaParty :
May 15th, 2008 at 10:21 am

Are we going to have this death watch for Ford too? I see many similarities between the General and Fords markets.
Ingvar :
May 15th, 2008 at 10:25 am

“My relatives are German, and my cousin works for Opel…one thing that HAS improved at Opel is reliability. The company had serious quality problems in the 1990s, but the cars are getting much better. They do, however, still seem to be boring.”

Opel/Vauxhall has ALWAYS had “serious quality problems”, compared to the european competition. In the same way the rest of GM has, everywhere else. It’s not until the current Astra and Vectra that quality is on par. GM Europe gained some heavy sales in the 80’s, due to the demise of the english auto industry, they have been living on those sales for a long time. Volkswagen upped the stakes in the mid 90’s, and now it’s time for both GM and Ford to catch up, or lose sales. Ford Europe has done well so far, with the Focus, Mondeo, S-Max and so on. The problem with Opel is not that they build bad cars, but that their cachet is boring on the borderline of being irrelevant…
KixStart :
May 15th, 2008 at 10:27 am

BostonTeaParty, Ford’s had its own Death Watch for a while; TTAC is up to installment #44 on that.

In fact, #44 is about Kirk Kerkorian betting, big, that Ford will disappoint those waiting for its demise.

There are things I like about Ford’s prospects, myself.
geeber :
May 15th, 2008 at 10:55 am

Stein X Leikanger: GMAC, starving suppliers, building ancient vehicles and going for the easy profit proposition today — all loaded up with insane incentives - came about because Wall Street is blind to long term.

Blaming Wall Street is too easy. If that were the case, why is GM’s stock price in the toilet? That is the ultimate verdict from Wall Street on the company and how it is being run. Obviously, Wall Street doesn’t like what it sees any better than we do.

The problem is that GM’s bean-counter oriented management THINKS it needs to please Wall Street, because that is what it really understands. It understands accounting and cutting costs, and not much else. The idea of having a long-term vision of the future of the car, or even of assuming a leadership position within the industry, is alien to them. It is beyond their comprehension (despite what the press releases say).

This problem originates in Detroit, not Wall Street.

GM had to bring in Bob Lutz to show it how to make remotely desirable cars again, for crying out loud. Mr. Lutz has (fairly) taken his share of lumps on this site for speaking out of turn on various subjects (global warming, whether GM’s brands have strong identities in the marketplace, etc.), but he HAS improved GM’s vehicle development processes.

The mere fact that GM had to bring in someone to revamp its vehicle development processes - or, basically show a car company how to build desirable cars - speaks volumes.

In 1958, when Frederick Donner took over the corporation, he stated that the company needed to pay attention to the price of its stock. This greatly disturbed the late, great, Bunkie Knudsen, who felt that GM should concentrate on building the best cars possible, and if it did so, the stock price would take care of itself.

Today, of course, we know that Bunkie was right. That is the lesson that GM management needs to relearn…but, at this point, it may be too late.
Paul Niedermeyer :
May 15th, 2008 at 10:59 am

BostonTeaParty: Are we going to have this death watch for Ford too? I see many similarities between the General and Fords markets.

Yes. Ford’s beautiful Mondeo is selling at a slower rate in Europe than the old Mondeo it replaced. Other problems abound. Stay tuned.