General Motors will continue investing $8 billion in annual product development, according to the automaker’s President of North America Mark Reuss. The General has invested roughly $8 billion a year to create new products for at least the last two years. For comparison, rival Volkswagen plans to invest 10.6 billion euros this year in new products.
Reuss also said that General Motors’ focus is to maximize profits by not producing more cars and trucks than it can sell.
“For the most part, people are buying our vehicles because they’re great vehicles, not because there’s a gift basket full of cash on the hood,” he said.
The strategy continues to exemplify discipline present at The New GM, marking a major departure in business strategy compared to the old General Motors, which was notorious for overproducing in an effort to maintain high market share, a metric by which The New GM has not performed well . For the most part, this practice necessitated the offering of large incentives, which decreased GM’s profitability (as well as that of its dealers).
One of the pillars of the new company from the get-go following the its exit from bankruptcy was to match production to market demand as closely as possible, even if that calls for idling manufacturing operations at certain plants.
Comments
Thing is General Motors in the past has artifically inflated it’s sales by abusing the subprime market and rolling over loan balances.
I doubt it. Everyone here knows GM counts a unit sale as a car sitting on the lot. All cars get sold eventually; that’s the dealers job.
More importantly, do you have any proof?
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On topic, $8,000,000,000 / 365.25 = $21,902,806.30
??? No, GM does not count a sale until a customer buys it from a dealer. Maybe I do not understand your statement.
They should sell the same model in more places! Isn’t that the best return on an investment? Sell Cruze hatch, wagon, the latest Colorado, Trax and the list goes, in US. The engineering money is already spent.
It’s the tooling costs that are the bigger factor here. From what we’ve heard, it will cost roughly a million to modify tooling at Lordstown to accommodate production of the Cruze hatch or Cruze wagon. That’s when the Profit to Expense ratio comes into play. Even if per-vehicle profit was $20k, they’d need to sell a whole bunch ($1 million/per-vehicle profit) to even pay for tooling.
Given that the new Cruze is about two years away, they won’t have enough time to sell enough to pay for tooling in that time frame.
The only way I know that companies could (or would) inflate their sales numbers was by projecting sales and adding those numbers to an existing fiscal quarter. They in essence reflected vehicles as being “sold” when they might not have even been built yet! If (for example) the city of Chicago was forecasted to refresh their ‘fleet’ of GM vehicles the next quarter, these numbers might be added to a ‘soft’ existing quarter. But if the fleet renewal went to Ford or Chrysler, then GM was in deeper and hotter water. It put stress on the upcoming quarters to meet profit projections. Legislation was brought into place to stop corporations from do this. Specified accounting principles (and practices) had to be followed otherwise it was considered fraud. GM’s previous strategy was to overproduce and discount the product with customer incentives to move the inventory. This practice decreases the profitable as the article says. It’s not necessarily a bad practice when you have excess inventory to move. But as a ‘central strategy’ I don’t think it serves the company well to over-produce. I like the “New GM”!
Import them, just like they export Vettes and Camaros, and import SS and PPV, Encore. Explain why they can’t do that w/ Cruze hatch and wagon.