ArticleGM is going to be a leading company in the industry worldwide (3)
Q: Is there any progress made?
R: Yes, there’s been tremendous progress already with the union. There have been a lot of agreements made and there’s one final piece of the agreement that has to be put in place, and I know that we are working on that at the moment in the US.
GM has been in talks with its bondholders to reduce its roughly 27 billion-dollar debt. It is estimated that only 18 billion-dollar in bonds converted into stock could reduce the company’s debts.
Q: Experts are saying that it’s not worth it turning the bonds of a company who is not making profit into stocks?
R: This is one of the things that government asked us to change actually. First of all, we were asked to change 2/3 of the bond into stock and now, they are asking for a much higher than that and possibly up to even 100%. And again, so it’s difficult for the bondholders. Do they make more money, waiting to see if they get anything paid out on their bonds? Or do they put their faith in the future of the company and take stock? I think you’ll have to look at what our plan is and what the government support is. For the company, it will survive and it will grow, so I think there is a much better chance for bondholders to make money if they have stocks rather than to take the risk of going to court, where they may end up with nothing. So I think, it’s a difficult decision, but it’s the decision that they’ll make either before or after we go to court.
Q: How are the bondholders responding? What if they don’t agree to turn these bonds into stocks?
R: Then the court process can take care of it. They can impose a solution on the bondholders.
J: We’ll see, I think from GM’s perspective, we are very focused on what we have to do with US treasury, with our bondholders, with the unions; we are focused on what we need to do to really address the US situation.
GM and Ford launched new incentives to lure car buyers at the end of March, including guaranteed loan payments for customers who lose their jobs after purchasing a new vehicle. How effective has this measure been? And are there any more effective options for GM?
R: This is just normal stuff when you get a declining market. It’s really weak and it’s 40% down and it’s been that way for a long time. And part of the reason is, the consumers have lost their confidence, not just in buying cars, but generally in the economy as a whole, it’s a difficult time. So they’ve lost confidence. So we need to give them an incentive to go on buy now rather than hang on. And if they don’t have a job, they are not available for a car. They will help a bit, but they are not going to change the whole market suddenly. They are not going to turn it around and put it back to the levels of 2 years ago. That will only come when people really have got their confidence back and the economy is strong again. What it will do, is that it will attract some people who are sort of in between, do I buy now, or don’t I, ah, well there’s a really good offer on and I’m going to buy now, so those are the people who will be attracted by these offers. While the market remains weak, there’ll be measures from everybody. And there already are, it’s not just GM and Ford. The market is very different in China, we do have some marketing programs, whether it be insurance, whether it be financial interest rate, or whatever we have marketing programs, but not anywhere near the stage, the size of the programs in the US. China confidence
Against all odds, China’s auto market had a strong performance in early 2009. Auto sales climbed for a second straight month in March, rising 5% to 1.11 million units. In contrast, March auto sales fell 30% in the US and 32% in Japan.
Q: As you said, China is still a booming market, especially at this point of time, we did see an 11 % increase in sales in auto market for the 1st quarter, is that a sign of recovery you think?
R: I think so. The market, we were up 17% in the first quarter. And the market is strong. It’s been helped by the government stimulus. And there’s a lot of demand out there, so people are going to come to this show personally, but also read about it, because they are in the market for a car. So it is an important show, and I think it will add a little bit of impetus to the market, which is already strong.
J: I’ll give you, how we see the market today. But I have to do that with some caution that, these are difficult times, volatile times, who knows what might happen? For sure, we’ve seen the first quarter coming much stronger than we had expected. We had every expectation that the first quarter will be slightly slower than the prior year, first quarter. In fact, it grew by 5%, so it was in fact the highest first quarter on record.
Many contribute China’s spike to the central government’s 4 trillion Yuan stimulus package early this year. Industry figures show, tax cuts and rebates for small purchases also helped lure buyers back into showrooms.
J: We’ve seen the government move very progressively in those regulatory measures to make the automotive industry in particular a real driver of domestic demand. So I think as the government looks for ways of offsetting perhaps a different export environment, and they look for internal opportunities, domestic opportunities, particularly in consumer consumption.
Q: When will the market pick up again?
R: In China, I don’t think they are going to drop, I would expect probably a 10% increase in the market in China this year.
J: Q3 Q4 of last year was particularly soft, we don’t see that being that soft this year, so the ability to show 5%, 10%. Maybe even higher growth in Q3, Q4. I think it is not unrealistic. What we see so far in April is a continuing trend of a very strong first quarter. So from that perspective, our view is actually fairly optimistic, we think we have every chance of growing; some are between 5% or 10 %. I wouldn’t be surprised to see it closer to 8%, 9%.
R: Around the rest of the world, I think we are going to probably wait until the beginning of the next year, I don’t really see anything very strong happening for the rest of this year.
The Chinese government encouraged its biggest automakers --- Shanghai Automotive Industry Corp, FAW, Dongfeng and Changan to lead consolidation of the automobile industry in January. The plan is likely to attract global attention because the plight of several ailing automakers in the US and Europe has repeatedly triggered rumors that Chinese producers could come to the rescue. Does GM Shanghai plan to acquire smaller manufacturers in China? Or could they be bought out by European companies?
J: On a global basis and particularly on a China basis, I think the question of consolidation through at least the medium term, I think is an interesting topic. I don’t know what to expect there. I suspect overtime, it will be difficult for so many different companies to continue by themselves. So I wouldn’t be surprised, especially in the areas of electric vehicle, battery technology, I wouldn’t be surprised to see a lot of collaboration at least. Maybe down the road, some forms of consolidation. As of now, we don’t have any plans. But we are always looking; we are very successful in this market. So we are always aware of what might be a good opportunity, but at this time, there are no plans. I don’t think there’s a high probability for GM and Ford. I don’t think there’s any interest. I don’t think there’s anything to be gained for GM or Ford. I don’t read any likelihood of the 3 domestic manufactures getting closer together. Clearly, there’s been an ultimatum for Chrysler and Fiat to work together, so I’ll follow the news and see what happens.
Some say, GM China, the joint venture between GM and SAIC is the gem of the GM Crown. Buick, the US market’s outdated brand had impressive sales performance in China’s auto market. Is there a moral to this story, which GM could use to help its ailing company rebound?
J: We’ve had the benefit of working with our colleagues in the US to define Buick together. I think Buick has had an enormous success in translating the idea of tranquility and comfort and the idea of power in control into this environment, into a Chinese environment, and to do that, to a much younger audience and so, we’ve done that with a lot of support, a lot of help from the global organization and I think as we all look for that next 10 years, as we look to stay relevant and dynamic for very young consumer, I think both US and China, I think we both are going to discover new things about Buick together.