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Sun 29 Apr 2007 12:00 AM

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Wheels of fortune

Last week, Toyota overtook General Motors as the world's biggest carmaker.

Our business has doubled in three years, and will have tripled by the end of next year," smiles Terry Johnsson, managing director of General Motors (GM) Middle East. "It's definitely a nice part of the world in that sense: Everyone's growing."

It's about time that the US manufacturer saw some growth. Despite marketing its vehicles in 33 countries, and selling 9.1 million GM cars and trucks last year - under brands including Cadillac, Chevrolet, GMC, HUMMER, Opel and Saab - these are dark days for the American automotive giant.

Just last week, GM lost its title as the world's largest carmaker, to Japanese manufacturer Toyota. According to the latest figures, GM sold 2.26 million cars and small trucks globally in the first three months of 2007. That compares with Toyota's sales of 2.348 million during the same period. Moreover, while it is predicted that the Japanese company will produce 9.42 million vehicles this year, analysts believe GM is unlikely to increase production above the figure of 9.181 million it reported for 2006.

Looking at the bottom line, Toyota made over US$18.4bn in operating profits for 2006. At the same time, GM lost US$2bn worldwide, and the previous year, the company reported a loss of US$10.4bn. That the company has managed to at least reduce its losses comes as a result of a series of redundancy programmes and closures - in all, GM has closed 12 plants and cut more than 34,000 jobs in an attempt to stem the hemorrhage.

In the US, GM's sales fell 7.7% in March from a year earlier, and the company's market share dipped to 22.9% from 23.9%. Meanwhile, Toyota saw sales rise 7.7%, Nissan had a 3.9% gain, and Honda said it was in for a record year. During the same period, Toyota managed to boost its market share to 15.6% from 11.2%.

"In the US, we're paying the price of several decades of just not having a product that really appealed," admits Johnsson. "Now, I'd say that over the last three years there's a new wave of product that's been coming out and winning awards and has been dynamite in the marketplace. So in the US there's very much a switch.

"We have to work really hard to halt the slide and change perception, and turn things around - but now we have the product that will win hands-down," he insists. "It's so far from what it used to be ten years ago. We turned away a lot of loyal families over a couple of decades, so now we've got to work extra hard to win them back one at a time. It's going to take a long time, and we're prepared for that."

In a business world that typically instructs its executives to ‘tow the line' and present a united front against its critics, Johnsson is refreshingly candid about GM's past failings. Then again, he can afford to be - it would seem that GM's Middle East performance is the antithesis of the carmaker's domestic struggles.

"Here, you don't have the negative perception issue, and you can really win with that," smiles Johnsson. "We haven't spent 20 years alienating Middle East customers, in the same way as we have done elsewhere, and particularly in the US."

As a result, sales growth in the Middle East has continued into the first quarter of 2007, with total sales in January, February and March of 30,679 units - an increase of 16% over Q1 2006. GM witnessed the strongest ever March month of sales in the region, the 41st consecutive month of record sales, making Q1 the best ever year to date performance for the auto manufacturer.

"We're in a great window of a high-liquidity environment, great consumer confidence, young demographics, a very enthusiastic dealer network, and a fabulous product lineup. We really should be doing well," insists Johnsson.

Growth is consistent across almost all Middle East markets, driven in particular by Saudi Arabia, which traditionally accounts for about 60% of GM's total regional sales. In the kingdom, sales grew by 20% to 18,857 units in the quarter. Meanwhile, sales in the United Arab Emirates, another key market for GM in the region, grew by an impressive 17% to 4186 units. Sales in Oman were up 33%, Bahrain sales up by 10%, Qatar sales were up 81% and the Levant markets saw sales increase by over 15%.

In 2006, GM in the Middle East registered a 24% increase over figures recorded in 2005, and Johnsson attributes this explosive growth to a series of factors. Not only has GM managed to shrug off the stigma associated with its domestic mistakes, the company is able to source cars from all over the world, using Dubai as a convenient logistical hub through which to direct traffic. Additionally, the company has built strong, lasting relationships with key dealers throughout the region.

"These are families with whom we have 40 or 50 years of relationship," he says. "Some of the first dealers in the region at all were our dealers, and these are great relationships with prominent business families, who believe in where we're going and are investing enormous amounts in facilities and land."

Such investment is not the sole preserve of dealers. As well as a parts distribution centre in Jebel Ali, and a partnership with Dubai Men's College, GM is committed to a unique nationalisation programme in Saudi Arabia, which has been officially recognised by the Saudi government as the benchmark for training young nationals.

The training centre currently has 160 students enrolled, and the first graduates will receive certification in May. Innovatively, the two-year programme operates on a work/study basis, with students spending three weeks studying in classrooms, labs and workshop on campus, then the next three weeks with a dealer on the workshop floor.

"This is the beginning of a very exciting initiative, the building of a qualified labour force," says Johnsson. "We started in Riyadh, we will shortly have centres in Jeddah and Ammam, and there are two more locations coming later this year.

"We're working through training and education, and trying to bring consistent standards," he continues. "To achieve that, we're working with the dealers to make sure that we service and sell cars consistently, from pricing and retail value, through to parts and after-sales service."

After-sales service is a particular focus for Johnsson at the moment. While confident that his team offers a superior service to that of his competitors in the region, he is adamant that the company has a long way to go to meet minimum standards.

"We've won a load of service awards, but it's still our weakest element," he explains. "We're not anywhere near where we want to be in terms of productivity in the workshop, or quick turns for repair orders. Also, here the technicians are typically on five-year visas, so you spend two years training them, and then they're gone three years later.

"That's definitely where we have to work the hardest, and we don't rate ourselves anywhere close to where we feel we should be," he continues. "Thankfully, our rivals are nowhere close to where they should be either - we're all weak."

Johnsson's goal is clear: "This is the environment that gave you seven-star hospitality, so you can do great service. In turn, the company that achieves seven-star service will really take off."

In the meantime, GM's growth is healthy enough for the carmaker to hire, not fire, in the Middle East. The company is on the lookout for "thousands" of skilled technicians, and is clearly determined to make a success of the region.

"The combination of high growth and high profit represents a tremendous opportunity for everybody in the industry," says Johnsson.

"Most of our growth actually comes from ex-Toyota customers, but that shouldn't be surprising because there's so many of them," her laughs. "Now what's driving our business, and what we think will happen in '07 and '08, is that we'll start seeing a much bigger mix of customers coming back to repurchase out of loyalty reasons."

As well as returning customers, GM has also trained its sights on first-time car owners, who represent a significant slice of the Middle East market.

"For the more traditional markets like Saudi Arabia, where you have a young population who aren't even driver's age, what we're noticing is that they're much more adventurous in what they're doing," explains Johnsson.

"They hold onto traditional values, but in terms of fashion, how they're spending their free time, and their interest in motor sports, we know that they are a much less loyal or brand-committed customer," he continues. "The 16, 17, 18 year-old is probably going to shop around for a vehicle that they just like - they want to drive what they want to drive. So we're seeing changing behaviour in terms of brand commitment."

As a result, GM is active across a wide range of profile-raising enterprises. As well as sponsoring the Saudi national football team, the company is heavily involved with motorsports, and also music concerts around the Middle East region.

Such investment, it is hoped, will reap significant benefits from the drivers of the future, and continue GM's success outside the US. Indeed, the carmaker's domestic troubles are in sharp contrast with its performance abroad.

"In Asia-Pacific, we're growing incredibly quickly," says Johnsson. "In India, South East Asia, and China, we're doing really well, and in Central and Eastern Europe, business is up double-digits with great growth.

"When you look at where the industry over the next 20 years is going to have growth, one of the main ball games is that you've got to participate in that growth," he continues.

"Of the global population, only 12% of the population has vehicles - so people think this is a mature industry, but it's nowhere close to that," he insists. "It's a mature industry in the UK and the US, but it's nowhere near a mature industry where the populations are."

While the Middle East may not boast the maturity of other automobile markets, at least this is one region in which the US carmaker hears more good news than bad. GM's domestic troubles, for once, seem a million miles away.

GM: Rising to the challenge

On Iraq...

We watch Iraq because in times where there has been extreme sentiment, we have seen the pendulum swing against US brands. That could happen to us one day, so that's just one thing we need to be cautious of.

Another thing is that our dealers must be prominent, so that when people think ‘who is Chevrolet', then they think of people within their own communities and people they are friends with, as opposed to some faceless US enterprise.

On manufacturing in the GCC...

For the GCC it doesn't make sense to pursue automotive manufacturing, because it's too cheap to bring them in. You have high-volume global plants pumping in units at 5% GCC duties, whereas if you were to build that same vehicle here, you'd have to import all the components, then you have all the costs of manufacturing. At the minimum you're adding 12 to 15% costs on top of high-volume and cost manufacturing.

On GM's Dubai headquarters...

Dubai is a great port of entry and for shipment of parts and vehicles, it is a very business-friendly environment, great access to creative talent, and a good place to attract talent to the company. By the same token, it's getting very expensive.

We are going to grow, but that will mean some of the teams moving closer to the markets that they handle. As a result, the headquarters are likely to shrink as company grows. However, our parts centre and core management team will always be here.

On the environment...

The vehicle of the next 20 years is going to move heavily into electrical, moving away from mechanical. With global warming and CO2 emissions, we've got to take the automobile out of the equation - with hydrogen, for example, we would completely remove the automobile from the global warming debate.

We want to offer people a choice. Even if there are five families who say, ‘Out of my twelve vehicles, I'm going to be the first on the block to have a hybrid vehicle', then that's a good thing.

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