General Motors Death Watch 177: The World is Not Enough

Paul Niedermeyer
by Paul Niedermeyer

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.

Paul Niedermeyer
Paul Niedermeyer

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  • P00ch P00ch on May 16, 2008
    geeber I fully agree on the size-price correlation. That is why we get a beast of an Accord while other markets get the slimmer TSX twin. However, I don't think the price of a US/Canada/Mexico-built Astra would be significantly higher than that of a Cobalt/G5. With current exchange rates, a Euro-built Astra is a no-go but if built here, it would be priced like most other cars in its class. And, with oil prices heading north, the size-price correlation may become less of an issue.
  • Joeaverage Joeaverage on May 19, 2008
    # geeber: I remembering visting Germany in the summer of 2004 and looking at a brand-new Opel Astra five-door sedan on the showroom floor. The sticker price converted to about $29,000 in the U.S. Note that even Honda sells the smaller, less roomy European Accord here as the more focused Acura TSX. Maybe that is what GM needs to do then. Bring them here and take them "upscale". Maybe that is what they are trying to do with Saturn now - I don't know. My point is I will pay for quality b/c quality means I don't have to buy cars as often. Were the German prices you quoted also including German taxes? I know Italian taxes were huge - annual registration costs were several hundred dollars based on the class of car, type of fuel it consumed, etc. Sales tax was so high it would give ya altitude sickness... I think I heard 30% at one point.
  • Theflyersfan The wheel and tire combo is tragic and the "M Stripe" has to go, but overall, this one is a keeper. Provided the mileage isn't 300,000 and the service records don't read like a horror novel, this could be one of the last (almost) unmodified E34s out there that isn't rotting in a barn. I can see this ad being taken down quickly due to someone taking the chance. Recently had some good finds here. Which means Monday, we'll see a 1999 Honda Civic with falling off body mods from Pep Boys, a rusted fart can, Honda Rot with bad paint, 400,000 miles, and a biohazard interior, all for the unrealistic price of $10,000.
  • Theflyersfan Expect a press report about an expansion of VW's Mexican plant any day now. I'm all for worker's rights to get the best (and fair) wages and benefits possible, but didn't VW, and for that matter many of the Asian and European carmaker plants in the south, already have as good of, if not better wages already? This can drive a wedge in those plants and this might be a case of be careful what you wish for.
  • Jkross22 When I think about products that I buy that are of the highest quality or are of great value, I have no idea if they are made as a whole or in parts by unionized employees. As a customer, that's really all I care about. When I think about services I receive from unionized and non-unionized employees, it varies from C- to F levels of service. Will unionizing make the cars better or worse?
  • Namesakeone I think it's the age old conundrum: Every company (or industry) wants every other one to pay its workers well; well-paid workers make great customers. But nobody wants to pay their own workers well; that would eat into profits. So instead of what Henry Ford (the first) did over a century ago, we will have a lot of companies copying Nike in the 1980s: third-world employees (with a few highly-paid celebrity athlete endorsers) selling overpriced products to upper-middle-class Americans (with a few urban street youths willing to literally kill for that product), until there are no more upper-middle-class Americans left.
  • ToolGuy I was challenged by Tim's incisive opinion, but thankfully Jeff's multiple vanilla truisms have set me straight. Or something. 😉
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