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This week, after Toyota Motor Corp. ended General Motors Corp.'s 76-year reign as the planet's largest car seller, the Detroit giant is officially singing a different tune. It's not a share game now, according to the automaker.
"We're focused on providing the best cars and trucks for our customers all around the world," John M. McDonald, a GM spokesman was widely quoted as saying following the news. "We're not focused on a race."
Out of options
While the notion of chasing profit rather than share has been gaining steam in other sectors, it's a realization that's come to share-obsessed Detroit mainly in the past year. It's driven by the fact that GM, Ford Motor Co. and Chrysler Group "have no other choice" than to focus on profitability to survive, said Edmunds.com senior analyst Jesse Toprak.
Of course, it's still an ego-bruising event in Detroit, but consumers don't care that GM has fallen to No. 2, said Art Spinella, president of consultant CNW Market Research. They are looking for good products and good value, and GM needs to focus on profit.
It already is. Toyota's roughly 90,000-unit worldwide sales edge over GM through March mostly was because of GM paring its less-profitable U.S. fleet sales to business, government and car-rental companies. "Going after market share doesn't guarantee profits," Mr. Toprak said.
GM averaged a 23.3% share in the first quarter of 2007 vs. 31% in some months of 2002 and 2003, Mr. Toprak said. It came in just shy of 29% in 2003. However, Mr. Toprak doubts GM will ever see a 30% U.S. share again -- and he said that's not necessarily a bad thing if smaller volume translates to a return to profitability.
In March, GM reported its first quarterly profit in two years: $950 million in the fourth quarter of 2006. But in GM's restated earnings for the full year, the company lost $2 billion globally. Although GM improved its North American auto arm's financial performance over 2005, the operation still was $799 million in the red.
The carmaker has a winning strategy in the fastest-growing market, China, and other markets such as Brazil and Russia. GM was the top-selling automaker in China last year, selling 877,000 vehicles, and for the first time, the automaker sold more Buicks in China (304,000) than in the U.S. (241,000).
But the U.S. is the world's largest auto market and GM's home turf.
GM's biggest problem here is that consumer perceptions trail its improved products, said Peter DeLorenzo, founder and publisher of Autoextremist.com. "It's going to take GM years to make headway in that area."
So while GM may be surrendering its stance on share, it needs to keep fighting back with marketing to re-establish itself as a producer of good products at good prices, said CNW's Mr. Spinella. And GM has been trying to do just that with campaigns touting its extended vehicle warranty, handled by Interpublic Group of Cos.' Deutsch, Los Angeles.
The Detroit carmaker's 16-month-old strategy to halt big, multibrand incentive programs in the U.S., price the bulk of its lineup closer to transaction prices and build better products is working, the experts said.
Edmunds' Mr. Toprak said GM's average incentive per vehicle slid nearly $1,000 in March to $2,900 from March 2006. GM's average discount from suggested retail price (sticker) to net transaction price improved to 14% in March 2007 vs. 21% in March 2005. "That means people are willing to pay more."
The deck is stacked against GM and other U.S. manufacturers because "our national policies make them structurally uncompetitive," said Jim Hossack, a VP at consultant AutoPacific. In Japan, the government, not corporations, handles pensions and health care and the government also works hard to keep the country's yen undervalued, he said.
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Five Lessons You Can Learn From Toyota
- Focus on continuous improvement. Employees in all parts of the company are encouraged to offer ideas for improvements.
- Share best marketing practices among divisions or brands. Sharing among Toyota, Scion and Lexus resulted in Toyota and Lexus adding more events in 2006 to connect with consumers.
- Quality, quality, quality. A relentless focus on product has created loyal buyers, giving it a big base of prospects to buy new models. Even recalls over quality issues in 2005 didn't damage Toyota's reputation, said Peter DeLorenzo, founder and publisher of Autoextremist.com.
- Change products to meet loyal buyers' needs over time. Toyota has ridden the baby-boomer wave, providing them with vehicles for every stage of their lives, said Rebecca Lindland, an associate director of consultant Global Insight's Automotive Group.
- Be humble. "Our biggest enemy is complacency," said Jim Press, president of Toyota Motor North America.