GM Could Phase Out a ‘Damaged’ Brand
General Motors Corp., which issued a shocking profit warning last week and has been losing market share, may phase out one of its weaker car brands if sales fail to meet projections, company Vice Chairman Bob Lutz said Wednesday.
GM’s Buick and Pontiac are both “damaged brands” because of lack of investment over the years, and GM is working to correct that with an array of new vehicles coming to market, Lutz said at an investment conference in New York.
But if some of its brands fail to meet sales projections, “then we would have to take a look at a phase-out. I hope we don’t have to do that. What we’ve got to do is keep the brands we’ve got.”
An elimination of any one of GM’s brands would probably mean plant closings and a shrinking of GM’s workforce.
Financial analysts have said for years that the world’s largest automaker has too many brands to support, even with the phase-out of the Oldsmobile brand a few years ago.
Sales for both Pontiac and Buick have lagged in recent years. But GM is in the midst of a $3-billion investment in new vehicles for Buick and Pontiac showrooms, and they will have four new vehicles this year, including the Solstice roadster, Torrent SUV and the G6 mid-size coupe.
GM, which last week cut its earnings outlook for 2005 by as much as 80%, posted a 6% drop in U.S. sales for the first two months of the year. GM’s U.S. market share fell to about 25%, far below its share of 27.5% for all of 2004.
Analysts said last week that GM’s March sales could fall as much as 10%, while foreign automakers such as Toyota Motor Corp., Hyundai Motor Co. and Nissan Motor Co. would continue to gain U.S. market share.
Lutz said GM would post relatively flat U.S. sales for March, however, performing much better than expected.
No details about an expected restructuring at GM, the largest private U.S. provider of healthcare benefits, have emerged since it roiled markets with its warning last week.
But the company, which has about $300 billion in outstanding debt, said Wednesday that it was in talks to sell a stake in its GMAC Commercial Mortgage unit after potential investors expressed interest in the unit.
And Lutz and Gary Cowger, GM’s president for North America, spoke of possible demands for a cut in mounting healthcare benefits for the company’s hourly union employees in remarks on the sidelines of the New York auto show Wednesday.
“An across-the-board competitive healthcare plan for salaried and hourly employees could literally save us billions,” Cowger said.
Lutz acknowledged that GM, which will struggle to make a profit this year, faced challenges. But he said GM was “taking the necessary steps to right this ship” and told reporters that the threat of bankruptcy at GM was “absolutely out of the question -- totally out of the question.”
GM shares fell 88 cents to $28.66 on the New York Stock Exchange.
