GM Sticks By Incentives and Recognizes Impact of Uncertainty

TOKYO, March 17, 2003; Reuters reported that General Motors Corp Chairman Jack Smith said on Monday that sales incentives would reemerge as an effective tool in selling cars once the uncertainty over a possible war in Iraq cleared away.

"The market is being impacted by the uncertainty over the war, so until that issue gets clarified and squared away, I think we will see a relatively weak market where it doesn't really matter what you do," Smith said in a speech in Tokyo.

"Once we see some finality to this situation in Iraq, we will see the market come back, and we expect that incentives will be important."

Despite offering heavy incentives in the U.S. market, sales at GM fell 19 percent in February from the year-earlier month.

GM led the U.S. industry in incentives for much of last year, a strategy that allowed it to increase profits and U.S. market share even as it cut prices.

But incentives only work if they boost sales enough to cover the reduction in revenue per vehicle and many industry experts believe many of Detroit's deals no longer live up to that standard.

GM gave a pessimistic outlook for the second quarter earlier this month, announcing a 10 percent cut in production over the same period a year ago. Rival Ford Motor Co has also said it would cut production due to larger-than-normal inventories and concerns about a war in Iraq.

Smith, who is due to retire in May after more than 40 years at the world's largest auto maker, said he expected any conflict in Iraq to be short-lived, in which case not much will change in the auto industry in the medium term.

ASIA-PACIFIC EXPANSION KEY

Noting that growth in the Asia-Pacific region was crucial for any global auto maker's success in coming years, Smith said GM was stepping up its activities throughout the region through its many regional partnerships.

The head of GM's flagship carmaking venture in China said recently that its output would jump more than 35 percent to over 150,000 cars in 2003. The Shanghai GM venture, one of GM's four joint ventures in China, posted sales of 110,763 units last year.

"GM and SAIC (Shanghai Automotive Industry Corp) are now looking for opportunities to collaborate with GM's Japanese alliance partners to jointly penetrate additional product and market segments and to achieve further operational synergies in China," Smith said.

GM owns 20 percent of Japan's Suzuki Motor Corp and Fuji Heavy Industries Ltd (Tokyo:7270.T - News) and is the largest shareholder of struggling truckmaker Isuzu Motors Ltd (Tokyo:7202.T - News).

Smith, who has overseen some of the strategic areas of GM's operations since relinquishing the chief executive position in late 2000, said that without significant economic growth in Japan, China would likely overtake the country as the second-largest auto market in the world in four or five years.

He added that barring any major changes in the global economic landscape and steady growth rates in China, the communist country could overtake the United States as the world's biggest auto market in 25 years' time.