May 15, 2008

GM president sees better times ahead for auto manufacturer

Henderson blames current sales slump on U.S. housing market, tight credit and rising gas prices

DETROIT

The U.S. auto industry is in a recession, but General Motors Corp. has prepared for it by cutting costs and rolling out new products, GM’s president and chief operating officer said Tuesday.

Fritz Henderson, the automaker’s number two executive, said GM is selling below trends for the third straight year.

He blamed the sales drop on the troubled housing market, tight credit and higher gasoline prices that are sending consumers from trucks to cars at a rate much faster than the company has ever seen.

GM announced this week it will close its transmission plant in Windsor by mid-2010 in a move that will affect 1,400 people.

The move is the latest in a series of closures in the auto sector in Canada as the high loonie and loss of market share to Asian automakers have crippled the auto manufacturing industry, centred in Ontario.

Henderson said GM is seeing sales growth in emerging markets.

He said the first quarter was about in line with GM’s expectations, but April’s sales drop surprised the company. He said GM sees more downside risk than upside opportunity for the remainder of 2008.

The Detroit-based automaker cut its industrywide U.S. sales outlook for 2008 to between 15.3 million and 15.5 million light vehicles from 16 million at the beginning of the year, largely due to plummeting sales of trucks and sport utility vehicles. That’s still higher than Ford Motor Co., which is forecasting 15 million.

Henderson said the 11-week strike at parts supplier American Axle and Manufacturing Holdings Inc. has had only a minimal effect on the company’s retail sales, largely because it had built up a large inventory of pickup trucks and sport utility vehicles at a time when the market shifted to smaller vehicles.

Henderson said the strike cost GM US$800 million in earnings before taxes in the first quarter, and he said the company agreed to American Axle’s request to kick in $200 million to help end the work stoppage by the United Auto Workers.

“We agreed to do that because we think it would be the most helpful thing we could do” to end the strike, Henderson said. “We’re working hard to not be involved in those day-to-day negotiations.”

Mike DiGiovanni, GM’s executive director of global market and industry analysis, told the conference the economy will rebound in the second half of the year but the pace would be sluggish.

DiGiovanni said the threat of a huge credit crunch has passed, and he predicted home prices likely are to fall further. Home construction, which has a big impact on pickup truck sales, may be near the bottom of a slump, and the rate of decline is slowing, he said.

“I guarantee you pickup sales will come back,” he said.

Associated Press

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