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GM says profit more important than sales

From businessweek| April 26,2007

Sales are so strong at Victory Toyota that it opened a gleaming new 38,000-square-foot showroom in February.

The dealership in the Detroit suburb of Canton Township has thrived even though it's only a short drive from the corporate offices of General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group.

The fact that Victory can win in an area so closely tied to the Detroit Three is to a large degree symbolic of GM's troubles in its home country, and it illustrates why the Japanese automaker was able to pass GM as the world's top auto seller in the first quarter of the year.

"We are still attracting the Big Three customers," said Ruben Dunlap, Victory Toyota's business development manager. "People are willing right now to pay a little bit more for the quality."

Toyota Motor Corp. announced Tuesday that it sold 2.35 million vehicles worldwide in the January-March period, surpassing the 2.26 million vehicles GM sold in the quarter, according to preliminary figures. It means that Toyota passed GM on a quarterly basis for the first time, and many analysts predict it will beat GM in sales and production for the full year.

GM says it's more concerned about making money and advancing its turnaround plan. Although its sales set records in the rest of the world so far this year, the company has sputtered in North America. Through the first quarter, its U.S. sales were off 5.5 percent, while Toyota's sales went up 11.2 percent largely because of its reputation for making quality fuel-efficient vehicles.

"The U.S. market is particularly weak, and it's offsetting any pockets of strength right now" for GM, said Kevin Tynan of Argus Research, a New York-based equity research company.

GM spokesman John McDonald said the company wouldn't make any moves to regain its worldwide lead, and would instead focus on profitability. The company lost $2 billion in 2006 and $10.4 billion in 2005.

That's the correct stance, said Efraim Levy, senior industry analyst with Standard & Poor's.

"They shouldn't do anything special to take the lead in terms of incentives. What they should do is get the product out there, but that doesn't happen on a dime. They should just worry about profitable vehicle sales and let the market share and the leadership fall where it may," he said.

GM's high labor costs, including big pension and retiree health care bills, take money from development of new products, said Paul Taylor, chief economist for the National Automobile Dealers Association. Toyota and Honda Motor Co. don't have the same costs, he said.

"They're developing more new products, bringing them into the market more quickly. New product is the key to sustaining sales gains in the U.S. market," he said.

GM's sales skid in the U.S. is due in part to its plan to reduce low-profit sales to rental car companies, and that gave Toyota the opening to take the world lead sooner than many analysts expected, said Jesse Toprak, senior analyst for the Edmunds.com auto Web site.

"All GM sacrificed in this decision was ego, since the executives knew Toyota would become No. 1 sooner when much of GMs fleet sales were removed from the count," Toprak said.

GM's McDonald said the race isn't over just because Toyota won the first quarter.

"Let's see what the rest of the year holds for us. We're going to fight for every sale," he said.

Some analysts say the rest of the year may be a tough go for GM, Chrysler and Ford because U.S. auto sales could decline due to economic uncertainty.

But GM's new car-based crossover vehicles are just hitting the market, and Chevrolet this summer will introduce a new midsize Malibu to compete with Toyota's Camry, the best-selling car in the U.S.

"It's clear that GM's new products are much more competitive," said Jeff Schuster, executive director of global forecasting for J.D. Power and Associates.

The new Malibu will show whether GM can be successful in making up ground on Toyota, he said.

"That will be a good test for the competitiveness of the group and of that brand in the coming months," he said.

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