GM Has a Hard Sell - Even to Itself

July 25, 2005

GM Has a Hard Sell - Even to Itself

Considering all its quality problems, it's not surprising so many once-loyal General Motors buyers abandoned the brand over the last few decades. Recent studies show GM now catching up to the best of the imports. Three of the giant automaker's brands actually passed vaunted quality trendsetterToyota in recent J.D. Power & Associate surveys. Yet getting that message out to the market hasn't been easy, concedes GM "car czar" Bob Lutz. "It still doesn't register with the public," he laments, adding that, "I can't even expunge the idea of superior Japanese quality from my own mind, even though we have the data that shows it's not true." The perceptive gap in quality is a particular problem for GM's cars, Lutz believes, but on the positive side, the solid quality of GM trucks has made it more difficult for new Japanese entries like the Toyota Tundra and Nissan Titan, both of which are selling under original expectations. Should buyers suddenly accept the idea that GM is worshipping at the quality alter? "We're in the third year of being reformed alcoholics," Lutz suggests, "so people still won't leave out the bottle of booze."-TCC Team

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GM Losses Widen in North America

General Motors Corp. struggled during the second quarter, running up a huge loss in its North American operations. The critical division reported a loss of $1.2 billion despite a highly touted promotion that boosted the company's sales by about 47 percent in June.

The big loss surprised analysts, who had expected the automaker to eke out a small profit of about 3 cents per share. Instead, GM wound up posting a net loss of $318 million or 56 cents per share. GM also lost $1.1 billion in the first quarter of 2005, primarily because of the company's troubled North American business.

"It's no secret GM has too many plants, people and nameplates and high legacy costs," Merrill Lynch analyst John Casesa said in a research note. In his note, Casesa also suggested that the poor results could make it easier for GM to obtain concessions from the United Auto Workers. Any concessions, however, would have to be shared with Ford and so far the UAW hasn't shown any inclination to move on GM's request for big changes in healthcare benefits.

John Devine, GM chief financial officer, said GM is continuing to discuss contract changes with the UAW but declined to offer any guidance on when they might be completed. Devine, however, said cutting the company's annual bill for healthcare would have a huge impact on profitability.

GM North America lost $1.2 billion versus earnings of $355 million in the second quarter of 2004 on the heels of a double-digit decline in production and rising costs for healthcare and material purchased from outside suppliers, Devine said.

Richard Wagoner, GM's chief executive officer, said the second quarter results also reflected a mix of some important pluses and minuses. "On the positive side, sales were up in all regions and global market share increased. ... But, importantly, on the minus side, GM North America's financial performance continued to be very disappointing."

On a positive note, GM Europe swung to a profit of $37 million in the second quarter from a loss of $45 million a year ago. It marked that operations' first profitable quarter in five years.

GM's U.S. sales had jumped 47 percent in June - their highest monthly total in nearly 19 years - thanks to the heavily promoted discount that allowed customers to buy cars and trucks at the employee rate. Ford and Chrysler followed after lackluster sales in June.

The success of the employee discount sales program means that GM's efforts to revamp its marketing are succeeding, Devine said. He added that the promotion appears to be creating strong sales again in July and has reduced GM's inventories of unsold vehicles to more manageable levels. In fact, GM has all but sold out of some 2005 models, Devine said.

GM cut production by 11 percent in the first half of 2005 from a year ago, and plans to continue the trend in the third quarter by as much as 9 percent, added Devine.

Besides cutting costs, Devine said GM also is counting on the launches of a new generation of trucks to help boost profits. He disclosed for the first time that production of new full-size SUVs will begin in December.

Other GM vehicles such as the new Chevrolet Cobalt and HUMMER H3 already are off to promising starts sales-wise, he said.

Devine also noted that GM's cash, marketable securities and available assets from an employees' healthcare trust totaled $20.2 billion on June 30, up from $19.8 billion on March 31. -Joe Szczesny

Daily Edition: Jul. 20, 2005 by TCC Team (7/20/2005)
Solstice set for August, Ford NA pulls down Q2 earnings.

Merrill Upgrades Nissan and Honda

Merrill Lynch's auto analysts upgraded shares of Nissan and Honda to "buy," while downgrading Toyota from "buy" to "neutral."

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