GM Says May Phase Out One of Its Brands

Snides Remarks: Let's see...first Olds now ? then ?, sell GMAC, pretty soon there will be no more expenses to cut...then what will the bean counters worry about... oh yeah we need product that people will want to buy. What do you think? msnide@theautochannel.com

NEW YORK/DETROIT March 23, 2005; Reuters reported that General Motors Corp.'s chief of product development on Wednesday warned that GM, which issued a shock 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.

GM Vice Chairman Bob Lutz did not specify which car might be dropped but described Buick and Pontiac as "damaged brands" due to lack of investment over the years, and told a Morgan Stanley automotive conference in New York that GM is working to correct that with an array of new vehicles coming to market.

If some of GM's 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," said Lutz, the former Chrysler vice chairman who joined GM in 2001 to remake its vehicle lineup.

An elimination of any one of GM's brands would likely mean plant closings and a shrinking of GM's hourly work force.

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, announced in 2000 and concluded last year.

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 percent, posted a 6 percent drop in U.S. sales for the first two months of the year. GM's U.S. market share fell to about 25 percent, far below its share of 27.5 percent for all of 2004.

Analysts said last week that GM's March sales could fall as much as 10 percent, while foreign automakers such as Toyota Motor Corp., Hyundai Motor Co. Ltd. and Nissan Motor Co. Ltd. would continue to gain U.S. market share.

Lutz said GM will post relatively flat U.S. sales for March, however, performing much better than expected.

"I think we're going to be just about even, our best guess at this point. Either a percent over or a percent under," he said. "It is a substantially better month than January or February, and it looks like the whole industry is up."

'A HUGE ALBATROSS'

No details about an expected restructuring at GM, the largest private U.S. provider of health-care benefits, have emerged since it roiled markets with its warning last week.

But the company, which has about $300 billion in outstanding debt, said on Wednesday it was in talks to sell a stake in its GMAC Commercial Mortgage unit after potential investors expressed interest in the unit.

And in remarks on the sidelines of the New York auto show on Wednesday, Lutz and Gary Cowger, GM's president for North America, spoke of possible demands for a cut in health-care benefits for the company's hourly union employees.

"An across-the-board competitive health-care plan for salaried and hourly employees could literally save us billions," Cowger said. Health-care costs, added Lutz, are "a huge albatross hanging over American industry today."

But Lutz told reporters the threat of bankruptcy at GM was "absolutely out of the question -- totally out of the question" and said GM was "taking the necessary steps to right this ship."

"Sure, we face short-term challenges, and this is not going to be a banner year," he told the Morgan Stanley conference. "It's a difficult period of adjustment. But we will get through it."

He said some of GM's new cars, such as its Chevrolet Cobalt small car and Pontiac G6 mid-size car, will post their best sales to date in March, and told the Morgan Stanley conference, "I don't know where all the gloom and doom is coming from."

He quoted one car reviewer who said, referring to GM's troubles, that the quality of the Cobalt convinced him that "the Titanic may yet turn fast enough to miss the iceberg."

Lutz said earlier this week that GM had canceled plans to build some new rear-wheel-drive cars off a new engineering platform, dubbed Zeta, as it juggles resources to get its next generation of sport utility vehicles and pickup trucks to market as soon as possible.

GM spokesman Pat Morrissey said on Wednesday that the reallocation of product development resources will also delay the introduction of a refreshed version of the Hummer H2 SUV by a few months next year. The next-generation Cadillac SRX wagon could also be pushed back a few months, he said.