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G.M. Looks to Luxury Cars for Higher Profit

January 11, 2012
4 min to read


DETROIT — After a humbling bankruptcy and $50 billion government bailout in 2009, General Motors has rebounded with steady profits and a fresh lineup of competitive vehicles.


But the next stage of the comeback poses new challenges for the nation’s largest automaker as it tries to make up for lost time when it suspended many of its product programs. The company started to catch up last year by turning out new small cars and mainstream sport utility vehicles. Now G.M. is focusing on beefing up its roster of higher-profit, luxury models for its Buick and Cadillac divisions, reported The New York Times.

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On Tuesday, G.M.’s strategy was on display here at the North American International Auto Show when it presented a new small Buick S.U.V. called the Encore that goes on sale next year. Earlier, G.M. introduced the much-anticipated Cadillac ATS, a compact sedan intended to compete with top-selling luxury models from BMW and Mercedes-Benz.


While G.M.’s sales in the United States increased 13 percent last year, its executives acknowledge that more growth was needed to improve profits in the coming year. With Europe and other international markets in the doldrums, G.M. is under pressure to further broaden its product lineup and increase margins in its home market.


“We are making our money here in the U.S., and we’re going to have to keep doing it,” said Mark L. Reuss, president of G.M.’s North American division.


Luxury cars like the Cadillac ATS can provide thousands of dollars more in profit than a more mainstream product.


Mr. Reuss said that expanding the Buick and Cadillac brands was essential to improving G.M.’s overall results. G.M. is also introducing a full-size Cadillac sedan this year, as well as a compact Buick called the Verano.

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Industry analysts were impressed by the quality and design of the new G.M. entries on display in Detroit, but questioned whether their incremental sales would be enough to increase the bottom line.


“They’re really nice products, but can they sell enough to bring in the revenue?” asked Ron Harbour, head of the automotive unit of the consulting firm Oliver Wyman. “What they really need is to sell more of the volume products like the Silverado pickup and the Chevrolet Malibu midsize sedan.”


G.M.’s big crosstown rival, the Ford Motor Company, is also increasingly dependent on the American market to contribute the bulk of its profits. But Ford avoided bankruptcy and continued to invest in new vehicles, even when the economy soured.


In addition, Ford’s reputation soared with consumers because — unlike G.M. and Chrysler — it was able to survive without financial help from American taxpayers.


“By not going into Chapter 11, we were able to preserve our product-cycle plan, keep our management team intact, and maintain continuity,” said Lewis Booth, Ford’s chief financial officer. “We never missed a beat.”

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G.M. has tried hard to distance itself from the bailout by the Obama administration. Its 2010 public stock offering took away some of the stigma of being “Government Motors.”


But the Treasury Department still owns 26 percent of the company. And because G.M.’s stock price has been mired in the low $20s after going public at $33 a share, the government has been reluctant to sell the remaining stake at a loss.


So G.M. is now in the position of relying on North American profit to carry the company financially and convince investors it deserves a better stock price.


Although G.M. sales are growing globally, the company’s chief executive, Daniel F. Akerson, said he is more focused on improving financial results than simply adding sales around the world.


“We need to focus on profits and margins and not necessarily try to post numbers on the board,” he told reporters at the auto show.

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G.M. has had seven consecutive profitable quarters, through the third quarter of last year, which was its last reporting period. But the year ahead will be tough because virtually all automakers are looking to earn much of their profits in the resurgent American market.


No one will be pulling harder for G.M.’s success than President Obama, who counts the rescues of G.M. and Chrysler among the successes of his administration’s economic policies.


As if to underscore the importance of Detroit’s revival to the administration, three cabinet secretaries — commerce, energy and transportation — were among the visitors to the media previews at the auto show this week.


G.M. executives, however, seemed to be weary of questions about the government’s role in its comeback and the taxpayers’ continued ownership stake in the company.


Mr. Reuss said he was concerned that the G.M. bailout would be constantly resurrected as a political issue in this year’s presidential election.

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“The only thing I can control,” he said, “is the performance of North America with great products, great pricing and disciplined production.”

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