Facing unprofitability in Europe and slowing growth in China, General Motors is undertaking an initiative to achieve profitability in South America to bolster its highly profitable U.S. operations.
In 2011, GM’s South American unit lost $122 million before interest and taxes, but posted an $818 million profit in 2010. Over the last five years, the automaker has been losing market share to competitors in the region.
During the first half of 2012, the unit earned a $64 million profit before interest and taxes (individual profit by country isn’t broken out publicly).
General Motors plans to release seven new vehicles in the next 12 months — including the new Onix subcompact hatchback and Trax subcompact crossover — as part of its most aggressive product push in the region’s history.
General Motors markets the Chevy brand in the country, although Opel is on its way to certain markets in South America.
The stakes are especially high in Brazil — the region’s largest country. Brazil accounted for more than half of all GM South America sales in the first half of 2012 and represents the world’s fifth-largest light-vehicle market. However, the country has experienced a slowdown as of late — with light-vehicle sales down two percent through August to 2.26 million.
The General’s share in Brazil fell to 18.3 percent last year from 24.3 percent in 2002 — mostly due to new competitors such as Hyundai, Nissan, and even Chinese entrants.
General Motors, along with a few other automakers, have traditionally treated the South American market as second, third, and even fourth lives for models that were outdated in North America and Europe.
“Brazil has typically had these models that have been around for decades, in some cases taking up a lot of the volume because they’re very affordable,” said Jeff Schuster, an industry analyst at LMC.
A prime example is the Chevy Astra — which is a legacy Opel Astra that went on sale in Europe in 1998. Thankfully, the practice seems to be coming to an end, since GM has shown — with vehicles such as the Onix and Spin — that it will now develop market-specific products.
According to GM’s regulatory filings and spokesperson Klaus-Peter Martin, the automaker sold 470,000 vehicles through September in Brazil — a 1.9 percent increase year-over-year. The 470,000 contains 30,872 units of the Cruze, compared to only 13,769 units sold in all of 2011 (according to LMC).
What’s more, GM’s average transaction price has increased by 20 percent on its new range of vehicles, according to Chevrolet Brazil marketing director Gustavo Colossi. The General’s newest vehicles are more profitable in Brazil thanks to higher-margin cars such as the Cruze and the S-10 pickup truck, known elsewhere as Colorado.
According to GM Brazil chief Grace Lieblein, GM predicts the market will grow to 4 million vehicles by 2015. To prepare for the increased demand, GM has already invested $3 billion in its Brazil operations in the past five years to develop market-specific products and modernize plants.
Fluctuations in currency still remains a challenge, however. “On our new products, we’ve got a pretty significant level of imported content and we’ve got exposure to the weakening real from that basis, so we need to work on that,” said GM’s chief financial officer for North and South America Chuck Stevens in August.
The General is also on a mission to lower fixed costs in Brazil. Currently, two thirds of the automaker’s operations are located in high-cost locations in the Sao Paulo area, whereas competitors locate in low-cost locations.
“When you look at Fiat, Volkswagen, the vast majority of their capacity is in low-cost regions of the country,” Stevens said. “Estimated cost penalty associated with that is $300 million to $400 million a year just from a footprint standpoint.”
While GM looks to further decrease expenses related to selling, general and administrative operations in South America (primarily in Brazil), 900 of its Brazil-based workers accepted buyouts in 2011.
Brazil isn’t the entire story, however, when it comes to GM’s South American operations. Just last week, the automaker announced plans to invest $450 million in its Rosario Automotive Complex to build an all-new global model based on a new global platform.
One of the export destinations for the new model is likely Brazil, with GM being the largest exporter of cars to the country from Argentina. The General has operated in Argentina since 1925 but had briefly exited the market between 1978-1985 due to economic hardships in the country.
In South America, the B-Segment occupied by the Onix is the largest vehicle segment in the region. As such, the automaker must have a presence in the segment, and whatever the offering, it must be competitive.
GM expects the Onix to account for as much as 30 percent of Chevrolet sales in 2014 in Brazil, according to Colossi. There — as is usually the case in most South American nations — the overall segment of subcompact, economy and small cars make up as much as 60 percent of Brazil’s auto sales. In addition, cars with smaller engines incur smaller tax rates.
“Onix is very important for us,” said Colossi. “It’s a big innovation for our product line, the largest innovation in terms volume for the last 15 years.”
We hope that GM has more luck in turning around its European operations than it’s currently having in Europe. But at the end of the day, what we’re seeing here is more of the same: perform an about-face on operations that were left to wither under Old GM, revitalize the product portfolio, increase profits, capitalize on potential efficiencies… only this time, perhaps a boost in market share might be part of the strategy, as well.
Source: Auto News
Amid a legal battle with a GM supplier.
Generally following the market trend.
Plus, special leases on all-new premium three-row crossover.
Refreshed SUV in crisp, clean colors.
Top-dog Caddy hits the racetrack.