GM Says It May Kill Off One of Its Brands
DETROIT (Reuters) - General Motors Corp., which issued a shock profit warning last week and has been losing market share, may phase out one of its weaker car brands if sales fail to meet projections, company Vice Chairman Bob Lutz said on Wednesday.
GM's Buick and Pontiac are both "damaged brands" due to lack of investment over the years, and GM is working to correct that with an array of new vehicles coming to market, Lutz told a Morgan Stanley automotive conference in New York.
But if some of its brands fail to meet sales projections, "then we would have to take a look at a phase-out. I hope we don't have to do that. What we've got to do is keep the brands we've got."
Financial analysts have said for years that the world's largest automaker has too many brands to support, even with the gradual phase-out of the Oldsmobile brand a few years ago, particularly with its weaker U.S. sales.
Sales for both Pontiac and Buick have lagged in recent years. But GM is in the midst of a $3 billion investment in new vehicles for Buick, and Pontiac showrooms and they will have four new vehicles this year, including the Solstice roadster, Torrent SUV and the G6 mid-size coupe.
GM, which last week cut its earnings outlook for 2005 by as much as 80 percent, posted a 6 percent drop in U.S. sales for the first two months of the year. GM's U.S. market share fell to about 25 percent, far below its share of 27.5 percent for all of 2004.
Analysts said last week that GM's March sales could fall as much as 10 percent in March, while foreign automakers such as Toyota Motor Corp., Hyundai Motor Co. Ltd. and Nissan Motor Co. Ltd. would continue to gain U.S. market share.
Lutz said GM will post relatively flat U.S. sales for March, however, performing much better than expected.
"I think we're going to be just about even, our best guess at this point. Either a percent over or a percent under," he said. "It is a substantially better month than January or February, and it looks like the whole industry is up."
"A HUGE ALBATROSS"
No details about an expected restructuring at GM, the largest private U.S. provider of health care, have emerged since it roiled markets with its warning last week.
But the company, which has about $300 billion in outstanding debt, said on Wednesday it was in talks to sell a stake in its GMAC Commercial Mortgage unit after potential investors expressed interest in the unit.
And Lutz and Gary Cowger, GM's president for North America, spoke of possible demands for a cut in mounting health care benefits for the company's hourly union employees in remarks on the sidelines of the New York auto show on Wednesday.
An elimination of any one of GM's brands would likely mean plant closings and a shrinking of GM's hourly work force.
"An across-the-board competitive health care plan for salaried and hourly employees could literally save us billions," Cowger said. Health care costs, added Lutz, are "a huge albatross hanging over American industry today."
Lutz particularly acknowledged that the automaker, which will struggle to make a profit this year, faces challenges. But he said GM was "taking the necessary step to right this ship."
"Sure, we face short-term challenges, and this is not going to be a banner year," he said. "It's a difficult period of adjustment. But we will get through it."
He said some of GM's new cars, such as its Chevrolet Cobalt small car and the Pontiac G6 mid-size car, will post their best sales to date in March, and told the Morgan Stanley conference "I don't know where all the gloom and doom is coming from."
He quoted one car reviewer who said, referring to GM's troubles, that the quality of the Cobalt convinced him that "the Titanic may yet turn fast enough to miss the iceberg."