General Motors in the US faces a two-year wait before employee benefit changes made to restore profitability can begin kicking in, according to General Motors Europe chief Carl-Peter Forster.
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Forster, interviewed on the sidelines of the British Motor Show in London today (22 July), noted that even [usually profitable, sales-boosting] Toyota was having difficulties in the States.
He said that GM’s current problems there are due in part to ‘legacy’ costs – generous employee and retiree benefits agreed with unions years ago in better times. These benefits, not offered by some rivals, were once sustainable on the profits of large vehicles such as SUVs.
Now things have changed, GM is taking action to reduce these costs ($US5-6bn annually) but this won’t take effect until a new healthcare fund is established [in conjunction with the United Auto Workers union] in 2010, Forster noted.
“Obviously we have to adjust. We don’t have the good profits of the SUVS to the same extent any more.
“We have a two-year period where we don’t have the profit stream coming in from the market but we still have to carry the [benefit cost] burden.
“The two-year window is a bit tough because revenue, margins and cost are not aligned.”
Asked what GM in the US, with slipping sales and profits, was doing ‘wrong’ compared with GM Europe (profitable with record half-year sales) getting it ‘right’, Forster said: “The American market is truly upside-down. The fuel prices have completely changed customer behaviour in the US much more than in Europe.
“Typically, the US consumer does react more pointedly to those external factors than the European consumer.”
He said that “fairly high” taxation in some markets meant that European consumers were already used to high fuel prices while a shift to smaller engines had already largely occurred before the recent fuel price hikes that have so hit the US automakers in their home market.
“The US consumer has reacted very pointedly” and GM, with installed capacity for large vehicles and their engines, now has to readjust rapidly, he added.
“The [US] market has simply come down by 25%. Imagine what would happen if the European market came down by 25%. That would be a disaster for the industry. To adjust to this sort of challenge is very tough and that’s what’s happening in the US.
“If you are still fairly dependent on the US, because you are a fairly large player, then it is even more difficult.”
Foster said General Motors Europe would likely help its US parent develop smaller cars by sharing the architecture and components of new models like the Saturn Aura-size Insignia launched in London today to replace the Opel/Vauxhall Vectra – rather than re-badging more Opels like the Saturn Astra currently sold in the US.
“We might take [the Insignia] or a similar vehicle off the same architecture and produce it in the US, and smaller cars also.”
The upcoming subcompact Chevrolet Cruze for the US would be one of the first examples of this architecture-sharing, he said.
GM product development chief Bob Lutz said at the show that GM Europe would launch the Cruze in Europe early in 2009 after its October Paris show debut.
Graeme Roberts
