Boost prices in a failing economy and a failing auto market-another
devious GM plan to "right size" their operations. Brilliant!
GM may boost vehicle prices to offset rising costs
Automotive News | March 20, 2008 - 5:10 pm EST
General Motors is studying ways to offset cost pressures, including
possibly raising prices on some vehicles, CFO Ray Young says.
GM also has taken about $500 million in “management actions” to mitigate
any potential downturn, Young said during a conference call Wednesday
with analysts. He did not give specifics.
“As CFO, my priority is making sure this place is funded,” Young said.
“While we believe the industry (in U.S. sales) will be in the low 16
million units, we have triggered actions right now to make sure we start
to conserve liquidity.”
For instance, GM has moved some nonproduct related capital spending
projects from the first half of this year to the second half, Young
said. “If the market doesn’t return, we will defer that further into the
future,” he added.
GM will run the business on a “quarter-to-quarter” basis, Young said.
The automaker is seeking ways to further cut manufacturing costs and
commercial and administrative spending. Young did not give specifics but
said that spending is now “totally contingent on the market coming back
the second half of the year.”
Young said: “The message I want to leave with you is that while we’re
still planning for a low 16 million industry, from a liquidity and
spending perspective, as CFO I am very, very cautious that we measure
out the spending and that the organization can afford it.”
GM ended 2007 with $27.3 billion in cash and it has $7 billion in
undrawn credit lines, Young said. GM is monitoring its liquidity, but
Young said he is confident in GM’s liquidity position through 2008.
GM’s 2008 strategy
GM will continue to use disciplined incentive spending and hold back its
daily rental fleet sales, Young said. GM also plans to keep inventory in
line with demand to avoid having to offer incentives to move product.
“These are volatile markets right now,” Young said. “We’re going to
digest what has happened in the month of March and set our production
schedules accordingly for the second quarter based on what happened in
March and make sure we don’t overproduce or have excess inventory.”
At the end of February, GM ran about 940,000 units of dealer stock,
that’s about 125,000 below the level at this point last year, Young said.
GM will also monitor its product mix and net prices.
“We’ll be aggressive in our pricing. At end of December we increased
prices in the U.S. by 1.5 percent on average for our vehicles to offset
some of the increase in commodity prices,” Young noted.
This year, GM will look to offset some of the cost pressures by
strategically applying additional price increases on some products,
More growth in emerging markets
One example, Young listed was with Saab where GM raised prices to offset
the currency imbalance of the weak dollar against the strong Euro. He
says Saab will continue to raise prices on newer product as well.
The continued strength of exports is one encouraging sign GM sees for
the industry this year, Young said. He said if the dollar continues to
be weak against the Euro, GM will look for ways to export more vehicles
from North America to Europe.
GM predicts a 41 percent growth in the size of emerging markets between
2007 and 2012, Young said. GM’s plan is to “grow like heck in the
emerging markets,” he added.
The good news is GM is well positioned in emerging markets, Young said.
There is tremendous growth potential in Russia, India, China and Brazil.
One day, China will be GM’s largest market in the world terms of its
growth rate, he said.
GM will also look to take advantage of some government-funding programs
in countries such as Brazil to help boost much-needed capital, Young said.