GM boss Wagoner talks prices, profits and products

Detroit. General Motors faces mounting pressure. Sales in Europe are down and the world's largest automaker is earning less and less money on vehicle sales due to a raging incentives battle in the USA. GM Chairman and CEO Rick Wagoner told Automobilwoche how he plans to return the group to its former success.

Q: General Motors is currently -- in regard to sales -- the world's No. 1 automobile manufacturer. How long will you be able to keep this position?

A: I don't think that anyone will be able to top us in that category in the near future. Even Volkswagen, which is Europe's largest automobile manufacturer, doesn't sell half as many cars worldwide as we do. Between January and September, we managed to increase our world market share from 15.1 percent to 15.2 percent over the same period in 2002. However, we certainly take our competitors seriously, especially Ford and Toyota. We also work hard to maintain our position in the most important markets -- western Europe and the USA -- and we work hard to continue increasing our market share in China, which will be the most important market in Asia. In 20 years, China will be just as important as the USA and Europe.

Q: General Motors' profitability isn't great right now. When will GM be the world's No. 1 in that category?

A: Of course, I hope that we will reach that as soon as possible. However, I cannot give you a date. This year we will probably make a profit of more than $5 per share. That is without taking into account the pending sale of our satellite subsidiary Hughes Electronics and any special sales. However, we are not content with that.

Q: What is your medium-term target?

A: By 2005/2006, we hope to be making of profit of $10 per share. It is a big challenge but we will try our best to reach this target.

Q: When looking at you balance sheet one might think that GM is a financial corporation rather than an automaker. Will you expand your successful financial arm GMAC and turn it into an all-finance provider?

A: No, we are not planning to expand our product range. A lot of capital is needed for that. I don't believe it would be worth the risk. Besides, we need the money to design our future automobile models. The car business is and will always be our core business. Our financial arm provides support -- currently, I admit, in a very good and solid way.

Q: When will the automaking business again make a significant profit?

A: The car business is a cyclical business that depends on the growth of the overall economy. During weak economic periods we have always made less profit. It was the same during the past decades as it is today. This is why it is an advantage that we can rely on the income from our financial sector, which is seldom cyclical. I am positive that as soon as the overall industry has recovered our automotive sector's engine will also start running again.

Q: When will that be?

A: In the USA, it started during the third quarter. I believe that the European automotive industry will be on its way up again starting in early 2004.

Q: By then will General Motors Europe start making significant profits again? From January to September it lost $399 million.

A: Even if it doesn't look too good there at the moment, I believe that in 2004 we will once again make a profit in Europe.

Q: Could Opel already reach this goal in 2003?

A: I do not want to comment on that. To be honest, the individual results of our subsidiaries are not that important to me. It is very difficult to separate them from each other because of the stream of goods going back and forth between our European branches. What is important for me is the total result for GM Europe.

Q: When will you start the production of Cadillac models in a European Opel plant?

A: No definite decisions have been made yet. However, it would definitely be a good strategy to ring the products closer to our new importer, Kroymans. By the way, this is not a new idea. Years ago we built the Cadillac Catera at Opel in Ruesselsheim.

Q: Your automotive sector has made a profit of more than $1 billion in the North America between January and September 2003 despite the price war in the USA. How long can you afford to take part in the discount battles?

A: We will not change the level of incentives as long as the macro-economic factors don't change substantially. It is my philosophy that the way to cope with our high fixed costs is to make good use of our capacities through aggressive pricing. Currently, we use approximately 88 percent of our US plants' capacities, but in a few years we hope to increase that to 100 percent. We definitely want to continue to grow and increase our US market share, which recently rose to 28.7 percent.

Q: The price war is not only reducing your profit it also is decreasing the residual value of the cars, causing the image of your brands to suffer.

A: Our success is based on our strong products. Cadillac and Hummer both have a very strong image, so does Chevrolet in the trucks sector. According to internal research, the general GM image has even improved during the past two years. And that is because we are aggressive and because within only a short period of time we put many new products on the market.

Q: Are you planning any further acquisitions?

A: No, we have sufficient brands, which is why we are not looking for any new opportunities. We are focused on better using the potential of our brands. In the medium-term we will only make acquisitions in China. However, it is too early to comment on those.

Q: Then lets talk about January 2004. At that time Fiat Auto could make use of a put-option and force GM to take over the remaining 80 percent Fiat.

A: Fiat has assured us -- and has also said publicly -- that that it does not intend to make use of the option but it wants to run an independent business. That is all I have to say about that.