So, Toyotaâs No. 1. What Now GM?By Michelle Krebs April 25, 2007
Weâre recovering from the shell shock of Toyota dropping the bomb that it had surpassed GM as No. 1 in global sales in the first quarter â- news the industry had expected. It was a matter of not if but when.
âThis was not an unexpected turn of events,â said Edmunds.com Senior Analyst Jesse Toprak, âbut it happened a bit earlier than forecasted.â
And, as I told NBCâs Detroit affiliate Tuesday, itâs also not the end of the world. While certainly not a positive trend -â no one likes being No. 2 when theyâve been No. 1 for more than seven decades -â GMâs dethroning could have a silver lining. The pressure is off to maintain the No. 1 sales spot, while allowing GM to focus on the more important race -â the one for profitability.
As a Detroit marketing professor told a local reporter: â[GM is] no longer the New York Yankees. They can be the pursuer rather than the pursued.â
At the same time, Toyota will don the bullâs eye of the press and public, while it struggles to ensure quality, control costs and maintain profit margins during its rapid growth.
But what now for General Motors?
Focus on Profits, Not Sales
As analysts from Edmunds.comâs Toprak to Maryann Keller talking on National Public Radio pointed out yesterday, the more important race is not the volume race. Anyone can win a sales race with enough money. But in the auto industry, thatâs a race no one can win since Toyota has the fattest bank account.
Rather, the more important race is the one for profitability. Look at BMW and Honda. They arenât focused on being No. 1 in global sales; they are focused on growth with profits, image and their brands.
Thatâs been GMâs mantra as well, of late.
The Detroit Free Press features an interesting graphic on page one of its business section. It shows GM and Toyota pretty close in a number of areas: number of employees -- Toyota 2.35 million; GM 2.26 million; 2006 vehicle sales -- Toyota 8.8 million, GM 9.1 million; 2006 production -- GM 9.2 million, Toyota 9.0 million.
But where the road diverges is in profitability. GM lost $2 billion in 2006; Toyota is expected to earn $13 billion. GM's market capitalization is $17.4 billion; Toyota's is a whopping $233.5 billion.
GM is on the right track in many areas. For starters, GM -- rightly -- slashed fleet sales, which left it open to Toyota taking over the No. 1 spot.
âGM wasnât making much money on those cars anyway,â noted Edmunds.comâs Toprak. âAll GM sacrificed in this decision was ego, since the executives knew Toyota would become No. 1 sooner when much of GMâs fleet sales were removed from the count.â
In addition, GM is focused on expanding in markets that are growing, ones in China and India. Face it; the mature markets of North America and Western Europe represent little future growth, but guarantee intense competition.
North America: GMâs Challenge
Still, North America is GMâs home base, and the carmaker has its work cut out for it here.
Itâs still got too many employees -â both salaried and hourly â- in its ranks. Clearly, GM needs a favorable contract with the UAW this fall and could use some help on health care issues, as the entire country could.
But itâs also got bloated ranks of salaried employees, many of the complacent and adding no value; in fact, they may well be hindering value. Only yesterday, hours after the âToyota surpasses GMâ announcement, I sat at a high school sporting event with a GM employee. He was telling me about co-workers just putting in their time until they were offered a buyout or were due for retirement. One, that very afternoon, was seeking out a quiet spot for an afternoon siesta, he told me. GM, get rid of them!
GM also must continue to cut costs but not to the point that it hurts quality and misses promising opportunities.
On the revenue generation side of the equation, a part GM has often disregarded in past turnaround attempts, GM must get on the shopping lists of buyers and convince them of the value of its vehicles -â not only to purchase but to purchase with fewer incentives and less discounting.
As the following chart indicates, GM and Toyota in the U.S. tell the tale of two companies.
GMâs cost of incentives, days to turn vehicles from inventory to a sale and discounting from list price have cost GM dearly. Thatâs in complete contrast to Toyota. Yet, at the same time, GMâs market share has slid as Toyotaâs has gained.
|U.S. Market Share||True Cost of Incentives||Days To Turn||Discount % From MSRP|