GM Executive Sees No U.S. Profit for 2 to 3 Years
General Motors Corp. will lose money in its North American automotive operations for the next two to three years, a senior GM executive said Friday in a sobering forecast that capped the auto industry’s annual conference.
Before the world’s largest auto maker can turn a profit in its core North American market, total sales of cars and trucks in the United States need to climb to 15 million, close to 15% above the level they are expected to reach this year, said J. T. Battenberg, vice president of GM’s Buick-Oldsmobile-Cadillac group.
“Realistically, until we get back to (pre-recession) volumes, which may be two or three years, it’s going to be very hard for North America to be profitable,” Battenberg said.
At a meeting with analysts in Detroit a day earlier, GM Chairman Robert Stempel predicted that the industry would sell only 13.5 million to 14 million cars and trucks in 1992. Sales for 1991 are expected to total about 13 million vehicles.
GM had planned to bolster its financial position by operating its North American assembly plants at capacity by the end of 1992, but that goal has receded along with the level of vehicle sales.
“It may take into 1993,” to get to operating capacity, Battenberg said.
Battenberg’s disheartening comments were the low point of the University of Michigan’s weeklong automotive seminar in this resort town on the edge of Lake Michigan. The conference has historically been a time for auto executives, suppliers and industry observers, poised at the beginning of a new model year, to discern the outlook for the U.S. car and truck business.
Together, the Big Three have lost $3.6 billion during the first six months of the year, and they are not expected to earn money before the fourth quarter. As sales continue the slow trek up from their deep trough--and as Japanese auto makers persistently chip away at Big Three market share--Ford, GM and Chrysler are looking for ways to cut costs without jeopardizing their product plans.
“I don’t think I’ve ever seen a time in the industry when the stress level was this high,” said Dave Cole, director of the University of Michigan’s Office for the Study of Automotive Transportation.
Stress was undeniably running high among about 800 auto parts suppliers in attendance at the conference. All are being asked to cut costs over the next year; many of them depend upon the Big Three U.S. auto makers for their livelihood.
“It’s kind of scary,” said Don Roman, a manager at Doehler Jarvis Corp., a Toledo, Ohio-based firm that supplies the Big Three U.S. auto makers with aluminum castings for their engines and transmissions. “We’re just going to have to find more effective ways of doing our business--or else.”
Although U.S. auto industry executives struck a tone of determined optimism in their comments during the week--even Battenberg insisted that “we Americans will continue to dominate the world automotive industry"--the increased competition, cost cutting, and lobbying efforts they deem necessary for the auto industry’s survival did little to boost the audience’s morale.
Ford Chairman Harold Poling pointed to Washington as the source of much unnecessary stress placed on the domestic industry. The No. 2 auto maker expects to spend about $2.6 billion in fixed costs, plus $600 per vehicle, to meet the federal regulations mandated by the Clean Air Act, Poling said.
Such legislation drives up the cost of vehicles and is bad for business, Poling said, urging the suppliers in attendance to join the Big Three in their lobbying efforts against future regulatory moves.
Chrysler President Robert Lutz agreed, emphasizing the need for the U.S. industry to work together in order to protect itself.
“When the cats in question are fast becoming an endangered species,” said Lutz, referring to the Big Three, “maybe it is time to band together just a little bit.”
The troubles Battenberg described at GM are a perfect example of the debacle facing the U.S. auto industry. In the third quarter of last year, GM took a $2.1-billion, one-time charge to account for the closing of at least four assembly plants, including the Van Nuys and Scarborough, Ontario, plants it shut down last month.
Analysts have applauded the closures, which will free the company of unproductive overhead.