GM CFO cites 3 reasons why it lags behind Ford in profitability

Article by Anita Panait, on November 13, 2012

Chuck Stevens, General Motors' Chief Financial Officer for North America, has outlined three main reasons why the carmaker still lags behind Ford Motor Co. in the North American market: long product cycle, later adoption of global platforms and still high fixed costs. During the carmaker’s third-quarter earnings conference call, a question was raised as to why GM is less profitable than Ford in North America.

There is truth in the question as GM posted only 7.8 percent in pretax profit margin in the region, compared to Ford’s 11.9 percent. Stevens replied that GM has a clear understanding of the gap and knows what it has to do to close it. GM’s CFO cited long product cycle as one the main reasons why the carmaker still lags behind Ford in terms of profitability.

According to Stevens, GM's most profitable vehicle lines are also its oldest. These include full-sized pickups and sports utility vehicles, which according to analysts, return profits of over $10,000 per unit. That helps the newer Ford F series gain an average transaction price of up to $1,000 more than GM’s Chevrolet Silverado. In addressing this reason, GM will go from having "the oldest portfolio in North America to the freshest" over the next two years, according Stevens. GM’s CFO added that new, redesigned or freshened vehicles will account for around 70 percent of GM’s volume in the US.

Stevens also noted that Ford is around two years ahead of GM on adopting global platforms. By employing global platforms, carmakers could drastically reduce cuts engineering and purchasing costs, resulting to higher profits. Stevens disclosed that by 2018, around 90 percent of its worldwide sales volume will be derived vehicles built on around 14 "core" platforms.

This would allow GM’s platform structure to be somewhat on par with those of Ford and Volkswagen Group. As for the third reason, fixed costs, GM has yet to fully trim its cost structure. GM chief executive Dan Akerson, however is accelerating those efforts.  For instance, the carmaker is consolidating outside marketing firms and taking information-technology programs in-house to reduce costs longer term.

Topics: gm, ford, profit

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