After Deep Cuts, GM Expects To See Profits on Small Cars
By NEAL E. BOUDETTE = September 14, 2006

DANA POINT, Calif. -- The deep structural cost cuts General Motors Corp. put in place this year should enable the auto maker to finally make money on small cars, the company's vice chairman said.

For years, most if not all compact cars made by GM and its Detroit rivals Ford Motor Co. and DaimlerChrysler AG's Chrysler Group have lost money, in large part because of the extra costs they carry to pay for health care and pensions for thousands of retired hourly workers.

But GM last year reached an agreement with the United Auto Workers to slash health care costs, and this year offered buyouts that will cut its unionized workforce by about a third by the end of the year.

Those savings and others stemming from planned plant closures and other measures will lower GM's fixed costs by about $9 billion next year, the company has said.

That's enough to enable GM to begin making money on small cars, Vice Chairman Robert Lutz said in an interview in southern California.

Until the cost cuts were put in place, GM's North American operations had fixed costs of about $40 billion a year -- the equivalent of about $8,000 for every car GM North America made, Mr. Lutz said.

"All our small cars were unprofitable" with costs at that level, he said.

He declined to say how much GM North America's per-car fixed costs will be once the 9 billion in cost reductions kick in next year. But he said the savings will change the profit picture on GM's small cars.

The Chevrolet Cobalt, he said, is already generating profits. "We now make money on that car," he said. The Cobalt, a compact sedan, has also been helped by increased demand while gasoline price hovered above $3 a gallon this summer. GM also changed its pricing strategy to reduce rebates and other incentives that eat into its margins.

The Cobalt is now selling without any major cash incentives, Mr. Lutz said. That also helps the car turn a profit.

The three Detroit car makers used to offset their losses on small cars with oversized profits on sports utility vehicles and pick up trucks. But sales of SUVs and trucks have sagged and incentives on them have increased, pushing all three car makers into financial difficulty and forcing them to find ways to make money on cars.

 

Good thing I got the rebates when I did I guess!

 

I hope that GM uses the money they are saving with the value pricing and no rebates is used to continously improve the car year over year so that eventually it will have the reputation that the Civic and Corolla now posess.

 

In class today my instructor gave us pamphlets from the GM confrence he went to the last 3 days. I must say GM is definetly a great company. They have more investments in North America than any other company and use 83% of parts from North America. Its really amazing looking at the handout. Warranty claims have gone down 44% in the last 4 years. Dealers on see 20% of work coming from warranty claims. GM has great products and look for more to come very soon!

 

If you don't mind telling the higher ups to give us a clutch that doesn't blow camel ***** and some axles that have more strength than a yard rake that would be awesome. I think the reason warranty claims have gone down so much is because stealerships are denying legitimate claims. I love GM, but they're stealerships are terrible.

 

This is good news but I find it's even sadder that they couldn't profit off the cavi... they used to pump out more and it was around for longer, had less features etc etc... oh well. Now all we need is for GM to figure out how to still profit while providing a dash that isn't rock hard!

 

 

why would a dealership ever deny a legit claim? They make tons off warranty since usually they are able to get the job done in 1/2 the time GM pays them for.

 

I dont understand why you guys complaign about the warranty, its one thing if it really does break on its own, its another to have aftermarket parts that break stuff and then trying to make it look stock and get it done for free. Gm shouldnt pay for your mistakes