AUTOSHOW-GM to cut cheap fleet sales by 100,000 in 2007
09 Jan 2007 18:49:14 GMT Source: Reuters
(For other stories from the Detroit Auto Show, go to http://today.reuters.com/news/globalcoverage.aspx?type=autoshow&src=cms) (Adds details, background, quotes, byline) By Jui Chakravorty DETROIT, Jan 9 (Reuters) - General Motors Corp. <GM.N> will reduce its sales to rental companies by 100,000 units in 2007 in an effort to boost the resale value of its vehicles, GM product chief Bob Lutz said on Tuesday. The automaker, which cut low-margin rental fleet sales by about 75,000 units in 2006, has been reducing rental fleet sales as part of its strategy to improve profitability. "We are going to reduce daily rentals by an additional 100,000 in 2007," Lutz said, speaking to reporters on the sidelines of the North American International Auto Show. "We need to get residual value up to Japanese levels," Lutz said, referring to the higher resale value of vehicles at competitors such as Toyota Motor Corp. <7203.T>. GM, which lost $10.6 billion in 2005, is in the middle of a broad restructuring that includes the slashing of more than 34,000 jobs and the closing of 12 plants. As part of its turnaround effort, the automaker has developed a strategy of more transparent pricing and lower incentives. Lutz also said lowering incentives and reducing fleet sales will further pressure U.S. market share, which GM has been steadily losing to Asian rivals. But he said the moves are necessary to reverse "damaging" sales practices from the last few years. "If in 2006 we had continued with the damaging practices of sales from 2003 and 2004...our market share would have been up 2 percent," Lutz said. "But that's how we damaged our residual value." GM, which up to 2006 relied heavily on big discounts to sell its vehicles, was the only U.S. automaker to see a drop in its average incentive per vehicle last year. As the automaker stayed away from incentives, it also saw its U.S. sales fall nearly 9 percent and its market share slip 1.7 percentage points to 24.5 percent. "A lot of the share problem over the last 18 months will continue into '07...as we fundamentally change from being a desperation merchandiser to a company that sells its vehicles at true value," Lutz said. Lutz said perception about car quality "lags" but GM's improved quality was a message that was getting through, if slowly. GM on Sunday swept the 2007 North American Car and Truck of the Year awards at the Detroit Show. Lutz also said he expects "more understanding" from the new Congress on healthcare and trade issues but not on GM's concerns about the government's proposal to raise Corporate Average Fuel Economy (CAFE) standards. "I have a feeling its going to be very, very hard to convince a Democrat Congress that raising CAFE requirements is not the right way to eliminate dependence on foreign oil," he said. The U.S. CAFE standard, which applies only to an average across the fleet of vehicles, is currently 27.5 miles per gallon for cars and 20.7 miles per gallon for trucks or SUVs weighing less than 8,500 pounds. U.S. automakers have said raising those standards would represent an unfair burden on them as they rely on larger vehicles for profitable sales while Asian rivals focus on smaller cars. Lutz, a long-time critic of CAFE rules, compared the attempt to force carmakers to sell smaller vehicles to "fighting the nation's obesity problem by forcing clothing manufactuers to sell garments only in small sizes."
