By Dave Guilford Automotive News Europe
General Motors is optimistic its European operations will break even this year after falling short of that goal in 2003. The world's No. 1 automaker believes one key to the future will be the next-generation Opel Astra which goes on sale in March.
CEO Rick Wagoner also is upbeat about GM's improving operations and its prospects for growth in Europe, China and the US.
Wagoner recently discussed GM's plans with Automotive News Europe at GM's Detroit headquarters.
What do you see in '04 for GM Europe on a volume and profit basis?
We think the volume for the European industry is going to be up a little bit.
The whole market will be up, and we should be up, because we're going to have the benefit of a full year of some of the products we introduced this year and a first-quarter introduction of the new Astra, which looks strong.
We think we ought to be able to get into breakeven next year, which is an important milestone.
How will you do this year in Europe when it comes to pricing?
â€œI'm afraid that pressures will continue to be tough there, so we're trying to set our cost targets in line with that.â€
What's going to keep Toyota from passing you?
We obviously need to run very well where we have strong positions. That needs to be a combination of getting the business running well, which I think we're doing, and making sure we get footprints where the market can grow. You can conduct scenarios where you gain share in every region, but you lose globally, because the growth is all in the region where you have the smallest share.
That's why we need to ask ourselves, "Where are we under-represented?" and make sure, on a profitable basis and with appropriate risk, we don't just sit around and let declining global share happen to us because we don't happen to be in the growth markets. Part of our jobs as the leaders of General Motors is to be where the growth is.
High growth is generally associated with high profit opportunities. If you look at our third-quarter financial results, you see some very interesting things.
With China, Asia-Pacific?
Yeah. Suddenly, they're actually making more money than the rest of the guys are. That wasn't true a few years ago, and that won't always be true. But I think those are the kinds of things we really need to do.
If you go back 20, 25 years ago, playing big in Asia meant you had to play big in Japan, and you just couldn't do it. The rules wouldn't allow you to. That's not true today. We can play in China.
We can play in India -- we've done a less effective job of that. We have found a way to play in Korea. We are finding a way to play in Japan, although that's a challenge.
You're going aggressively in China, obviously. Where else in the world are those growth opportunities?
Eastern Europe is important. Russia has shown a lot more.
What kind of time frame for those places?
About five years. But Russia -- this little venture we put over there, with some consternation as to how it would develop -- is really moving. The growth has been very strong, better than people thought, and our little effort there with AvtoVAZ has started out very well.
We're encouraged, and we're making a lot more volume than we thought, and we're selling a lot more of it, in fact all of it, locally.
It's achieving its profitability targets. So we're going to reinvest and put some more product in there.
Are you going to invest a lot more there?
We're going to take it step by step. We had to make a big step into China because those were the rules of the game. India is a place where there is great growth potential. Generally, in places such as Thailand there is growth potential. And I haven't given up on South America. I think we've had quite a pause there. I mean we've been pausing for five years, but I believe it will come back.
By GM's projections, the US market's going up by just about the amount of new capacity that Nissan's adding in the state of Mississippi.
Yes, there is more capacity here. That does bring, undoubtedly, pressure in the marketplace. Our hope it that we get some industry growth, a stronger economy, and our hope is that we get some stronger growth around the world. That's our baseline expectation, but right now it's kind of a two-horse carriage, if you will. The US and China are kind of pulling along. But the signs in Europe are, we think, encouraging but not as advanced. The signs in Japan are encouraging but not as advanced. Even in South America, probably a little less so, we are seeing some positive signs.
Are you going to integrate Saab more into GM in North America?
I think we're going to leverage it more. We're focused on trying to grow their sales, and it's pretty simple. Get the right dealers, get them in the right position to sell and then get them a lot of products to sell.
That's really been the primary focus.
How do you assess your supplier relations?
Relations are good with the suppliers that are gaining business. The ones that aren't might not be so happy with us. But it's the world that we're moving to.
I see the supply base consolidating, just as the OEMs have, and I think they're doing it for the right reasons. I talk to suppliers and (our) expectations are high, but the ways they are going to be measured by us are far more transparent.
Expectations are far clearer. We've said we'd like to get 20 percent material cost reduction in three years, which I thought was a stretch goal until I saw that Toyota was going for 30 percent.
The fact that we're consolidating is causing some friction. That's not unnatural. It's not particularly pleasant, but it's a realistic situation.
I know that what we did over the last three years to help suppliers most was keeping volume.
Are you behind Toyota and Honda on hybrids? Is it a significant advantage to them to be associated with hybrids early?
I think it's helped their image, although ultimately that is a long-term race.
Was it helpful to us to be associated with all-electric vehicles early? Yes, until the first 200 were sold, and nobody else wanted to buy them. Then it was less helpful.
The trick is going to be longer term. Who can make a business out of hybrid vehicles -- a real business.
Toyota is the only automaker that gets to remain dominant in its home market.
That is an absolutely accurate observation. And, as we sit here today, it doesn't look like there's much growth in Japan and not a huge amount of profit. So if I have dollars to invest, if the growth and the profit opportunities are better in China and the US, why would I beat my head against the wall?
It seemed like what you were doing at the Tokyo show was saying that. You're bringing the cars in from GM Daewoo, you're scaling back the emphasis on US-built cars in Japan ...
And European, too, to be honest.
Are you saying this: Get as much as we can get out of Japan, because we've got more important challenges elsewhere?
I think that's accurate. I would have just amended it to have said it a little differently, that we think this is the way that we can be most effective in growing in Japan and have a chance to make a business out of it and make money.
Remember, the other thing is to see if we can more effectively leverage our relationships, particularly with Suzuki, rather than saying "Come hell or high water, we're going to try to sell a whole lot of US or European-built products in Japan, which, realistically, nobody does. Some people do a lot more than us, but nobody sells a tonne.
What about fuel cells? Larry Burns (vice president for research and development) recently said you're moving into a phase of trying to find a commercially viable vehicle.
Larry's assignment is really try to work on the costs. It's still too expensive.
If we just work the public display and the technology "gee-whiz" side, we're never going to get it to be a business. Unless somebody at some point thinks they're going to make some money off it, it isn't going to work.
Is the time frame for production vehicles still the end-of-the-decade?
That's the best bet we have. We haven't seen anything to say, "Don't use that date."
Is Hummer going to be a volume division? Are we talking hundreds of thousands of units?
I think there's a chance to get to at least a hundred. without the "s" on it. I think that's a growth brand, but I'm probably more patient than most. We ought to do it right.
We do need to keep it a premium brand. We don't need another mass brand. This phenomenon of people getting wealthier and buying upscale is a real one, and we think that's going to continue.
How do you talk about long-term relations and say, "Oh by the way, if anybody can build this cheaper, we can fire you in 30 days, and you eat the investment?"
Let me ask you this: What do you think the terms are in most other OEMs in this industry? The answer is exactly the same as the ones that we went to.
Part of the reason that came up is we try to run as one worldwide purchasing organization, but over the years we've had different commentary on that situation, so we wanted to move to a standardized contract. We benchmarked to see how other people in the industry do it.
Do you think that it is going to be in our interest, on a regular basis, 30 days before production, to move supply from company A to company B? It could happen, but it would have to be an outrageous set or circumstances to do that.
We need to be thinking all the way through to the start of production on how we can improve our competitiveness.
This competitive threat is painful every day, but you get better when you get used to the stress and the pressure.
It's way too early to say that that game is over.
I would be the first to admit that we started a little late because we really thought that the right long-term solution was fuel cells.
Now we believe hybrids could be a medium-term solution.
You old Brazil guys never give up on Brazil.
You can't, because just about when you're ready to, it comes back, and you're saying, "This is a pretty profitable place. I'm glad we're here." You need those jolts every five years or so, and we are due for one. But our experience, if you lay it out over 75 years and say, "Was this a good deal or not?" it is a resounding yes.