Why Ford is more profitable than GM.

[Nikked]

DETROIT -- It has been more than three years since General Motors emerged from bankruptcy liberated from much of its bloated cost structure. So why is GM still far less profitable than archrival Ford Motor Co. in the bread-and-butter North American market?

An equity analyst sprang that question on GM's top brass last week during its third-quarter earnings conference call (albeit worded a bit more diplomatically). He got a refreshingly candid answer.

Chuck Stevens, GM's CFO for North America, laid out a few key reasons why GM's pretax profit margin of 7.8 percent in North America lagged Ford's 11.9 percent.

"We have a clear understanding of the gap," Stevens says. "We know what we have to do to close it."

Here's how he sizes it up:

1. Product cycle

GM's most profitable vehicle lines are also its oldest: full-sized pickups and SUVs that analysts say carry profits of more than $10,000 per unit. That helps the much-fresher Ford F series garner an average transaction price of as much as $1,000 more than the Chevy Silverado.

GM's answer: It will go from having "the oldest portfolio in North America to the freshest" over the next two years, Stevens says, with redesigns or freshenings of vehicles that account for about 70 percent of GM's U.S. volume.

That includes those long-in-the-tooth pickups and SUVs. Stevens expects "at a minimum" to erase that $1,000 pricing gap when the next-gen pickups are launched, which is expected by the summer.



2. Global platforms

Stevens says Ford is about two years ahead of GM on its move to global platforms, which cuts engineering and purchasing costs, thus boosting profitability.

GM's answer: By 2018, it expects to get 90 percent of its sales volume globally from vehicles made on about 14 "core" vehicle platforms. That would put GM's platform structure roughly on par with rivals Ford and Volkswagen Group.

3. Fixed costs

GM still hasn't done enough to whack away at its cost structure. GM CEO Dan Akerson is accelerating those efforts, though. GM is consolidating outside marketing firms and taking information-technology programs in-house to cut costs longer term, for example.

Akerson labels those more-mundane measures "taking complexity out of the business." It's a chore that is as obviously necessary at GM as it is daunting.

But the real key to erasing the profit gap with its archrival, GM execs know, returns to a truism of the auto industry: It's all about the product.

Get the next-gen trucks right, and GM can sell more of them for higher prices. Ditto for GM's new Cadillac nameplates, for example, and the redesigned Chevy Impala due out early next year.

"The first and most important" step, Stevens acknowledges, "will be the product launch cadence."


You can reach Mike Colias at mcolias@crain.com.

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