GM Tops Toyota Abroad Proving Drop to No. 2 Premature (Update2)
GM Tops Toyota Abroad Proving Drop to No. 2 Premature (Update2)
By Jeff Green
Feb. 11 (Bloomberg) — Investors doubting General Motors
Corp.;s comeback after a third straight annual loss should count
the 2,500 crates of partially built Chevrolets leaving South
Korea every day for plants in Poland and China.
With about six of every 10 new GM vehicles now sold overseas
as U.S. production shrinks, the Detroit-based company fended off
Toyota Motor Corp. last year and preserved its 77-year reign as
the world;s biggest automaker. Rising output abroad and a cost-
saving labor contract may push profit to $12.75 a share by 2010,
said Burnham Securities Inc. analyst David Healy.
Analysts expect GM to post a loss of 64 cents a share for
the fourth quarter tomorrow. Most of the past three years of
deficits stem from North America, where Chief Executive Officer
Rick Wagoner has cut 1 million units of production capacity since
2005 while ceding sales and market share to Toyota.
“The market had underestimated GM;s ability to grow,;; said
Lehman Brothers analyst Brian Johnson in New York. He said the
company is poised to outpace the industry in some of the fastest-
growing auto markets, including China and Latin America. He
maintains a “hold;; rating on GM shares with a target of $36 –
about $10 higher than its price on Feb. 8.
Analysts project U.S. auto sales may fall to 15.5 million
this year, around 8 percent below the annual average this decade.
GM hasn;t posted an annual sales gain in the U.S. since 1999,
while Toyota has advanced each year.
Risk in U.S.
Chief Financial Officer Fritz Henderson told reporters Jan.
29 that he sees risk over the next 18 months of further slowing
in the U.S. economy. That isn;t preventing the company from
moving over the next two years to boost annual output overseas by
about 1.4 million vehicles, according to a Bloomberg tally.
GM;s North American losses may be wider than the $400
million that analysts are expecting because of higher costs such
as payments to keep pace with Toyota pickup incentives in the
U.S., two people familiar with the results said.
Toyota has focused most of its expansion in North America,
which accounts for 30 percent of global sales. It is playing
catch-up to GM throughout Asia and eastern Europe.
The Japanese company aims by 2009 to be the first to sell 10
million vehicles globally, up from 9.366 million last year.
General Motors, with 9.369 million sales in 2007, has held the
lead two years longer than most experts predicted and may keep
it, Healy said. Fifty-nine percent of new GM autos are now sold
abroad, versus about eight of 10 for Toyota outside Japan.
Cash Hoard
General Motors is relying on a cash hoard of $30 billion to
help it get to 2009 and 2010. That;s when an additional $5
billion in labor savings from the United Auto Workers contract
will bolster North American results, said Healy, who is based in
Sierra Vista, Arizona.
“Since the stock is only slightly above its early 2006
lows, the market seems to be ignoring the remarkable recovery
occurring right under its nose,;; he said. GM will post a 2008
profit of $1.75 a share, Healy said, above the $1.06 average
estimate of 14 analysts surveyed by Bloomberg.
“All told, the two-year improvement in operating earnings
in the four geographical regions amounts to almost $8.6
billion,;; he said.
Keeping pace with demand outside the U.S. is propelling GM
toward the 10-million sales mark, said Chris Lacey, who runs the
company;s Central and Eastern European and Russian operations
from Budapest. GM can produce about 439,000 vehicles in the
region now. That may double by the end of next year, he said.
Projects include new joint ventures in Kazakhstan, Serbia,
Uzbekistan and Poland as well as a 70,000-unit GM-owned plant in
St. Petersburg, Lacey said.
Toyota will get about 300,000 units of additional North
American capacity from new factories in Ontario and Mississippi,
part of a planned expansion of 700,000 from 2006 through 2010.
Russian Race
The company;s Russian plant will build about 20,000 units
this year, with capacity for about 50,000. That;s less than GM;s
planned capacity for a plant in the country and trails the
company;s total production in the region. General Motors is also
ahead of Toyota in India and outsells its Japanese competitor by
more than 2-to-1 in China.
In South Korea, GM Daewoo Auto exported 830,000 fully built
vehicles last year for emerging economies and another 926,000
crates of “knock-down;; kits with partially built vehicles to be
assembled in local markets. Combined shipments will probably
exceed 2 million this year as more containers go to Poland and
Uzbekistan, said Michael Grimaldi, the unit;s chief.
“It;s this sales mix that will eventually save GM,;; said
John Casesa, managing partner at Casesa Shapiro Group in New
York. “Overseas growth is absolutely necessary if this company
is going to compete not just with Toyota but with the emerging-
market auto companies.;;
GM gained $1.32, or 5.1 percent, to $27.12 at 4:22 p.m. in
New York Stock Exchange composite trading. The shares have fallen
25 percent in the past 12 months.
To contact the reporter on this story:
Jeff Green in Southfield, Michigan at
