South American boost for General Motors: how Brazil and South America are praying a key rote in General. Motor's global business.

Author:Ogier, Thierry
Position:COMPANY REPORT - Company overview
 
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SAO PAULO -- Walter Lazzarini is a happy General Motors customer. The Sao Paulo taxi driver says his Chevrolet Corsa is reliable and maintenance costs are relatively low. As a taxi driver, he was able to purchase the car with 60 monthly installments (which is longer than usual credit, now down to 48 months). Last, but not least, it has good space. "It has more space at the back, which is good for baggage," he says.

Lazzarini is not alone. The Corsa is Brazil's third-most-popular car. Meanwhile, General Motors also produces the second-most-popular model on the market, the Chevrolet Celta, according to AutoInforme, a Brazilian news agency specializing in the local and international auto market. Celta also sells well on the second-hand market, which is something Brazilian consumers value, says Joel Leite, editor of AutoInforme. "One of the main criteria before purchase is how much I will be able to sell the car for later," he says. "We have a survey that shows that the Celta is the car that depreciates the least in the market. This is good value to the consumers."

KEY MARKET FOR GM

Brazil and South America have become key to GM's overall success as traditional markets continue to lag. "South America today is the third-largest for GM outside the U.S. and China," Jaime Ardila, president of GM South America, points out in an interview with Latin Trade.

And unlike the meltdown in the United States in recent years, South America has been a bastion of strong results in recent years. "These have been operations that have been consistently profitable over the years," Ardila says. "It remained profitable during the major crises in 2008 and 2009. That provided significant financial support for GM globally."

South America is the second-fastest-growing region for GM in unit sales. Last year, GM posted a 17.7 percent increase in auto sales in South America. That compares with 25.4 percent in GM's international division (which includes China), a 5.7 percent increase in North America and a 0.4 percent decline in Europe.

Meanwhile, South America is the region where GM has the highest market share worldwide. Its market share of 19.9 percent compares with 18.8 percent in the United States, 12.8 percent in China and 8.8 percent in Europe.

And while GM is cutting its labor force worldwide, it's boosting it in South America. The region had 31,000 employees as of year-end 2010, an increase of 10.7 percent from year-end 2009. By comparison, the global workforce declined 6 percent, while the number of U.S. workers fell 6.8 percent last year. It also fell in Europe and its international division.

Meanwhile, the number of dealers remained largely intact last year despite significant cutbacks in the United States. As of year-end 2010, GM had 1,136 dealers in South America, a slight (2.6 percent) decline from 1,166 in 2009. That compares with a 19.9 percent cut in North America and a 6.7 percent decline in Europe.

GM's main strength in South America is its widespread knowledge of the market and the ability to hedge against currencies by using Korean/Mexican/European sourcing for imports, says Guido Voldozo, senior market analyst in charge of covering the automotive industry in Latin America for global consultancy IHS.

Last year, South America revenues grew by 17.1 percent to $15.4 billion. That placed GM South America in 25th place on the Latin 500 ranking of Latin America's top companies. It also made it the sixth-largest foreign firm in Latin America, according to the ranking from Latin Trade and Latin Business Chronicle. Earnings before interest and taxes (EBIT) reached $818 million in 2010.

The South American auto market is expected to go from nearly 5 million units last year to 6.2 million in 2014, according to a forecast from J.D. Power and Associates, the marketing information and research company.

"The region has become particularly important because traditional markets [such as] USA, European Union and Japan ... have...

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