US market puts brakes on GM profits

General Motors, the world’s biggest automotive company, issued a profits warning to investors as it felt the heat of unprecedented competition in its US heartland.

GM said it now expects to post a loss in the first quarter of 2005 after earlier predicting it would end the period at break-even or better, and said profits for the year as a whole would be significantly lower than forecast.

While the company said its operations outside the US, including Europe, remained on track, the American domestic market is proving a major headache for the automotive behemoth.

GM will build about 70,000 fewer vehicles than expected in North America during the first quarter in response to intense competition from foreign manufacturers.

Chief executive Rick Wagoner admitted the company was under pressure to turn around its domestic performance. ‘North America is our biggest business and the key driver of automotive earnings and cash flow — so it’s important that we get this business right,’ he said.

The company is facing problems on two fronts. Firstly, its production costs in the US are higher than those of its Asian rivals, leaving it struggling to compete on price and forcing it to expend considerable energies looking inwards in a bid to squeeze out savings. Secondly, some market commentators believe it has been slower than its rivals to launch the types of innovative, desirable car models that appeal to style-conscious consumers.

The success of models such as BMW’s Mini in capturing the imagination of American motorists is, according to their critics, a lesson for the established US car manufacturers in the power of strong brand design.

GM recognised the importance of boosting the appeal of its models to customers in its profits warning statement to investors, promising to spend more on marketing and to ‘aggressively strengthen’ its portfolio of brands. Some new launches will be brought through production more rapidly than expected, the company added.