Speech by Carl-Peter Forster

Following is the transcript of a speech by Carl-Peter Forster, at a General Motors Corporate event in Dudenhofen, Germany, on March 29, 2007.

It’s a good insight to the current state of affairs at GM Europe and goes some way to explaining why things are done the way they are at GM. There’s been a number of changes in Europe and in particular, with Saab’s operations at Trollhattan being shipped to Russelsheim. Hopefully, this will give you some understanding with regard to the strategy behind that.

It’s definitely not a Saab-specific article, but the little Swede does rate a few notable mentions. The funniest of which was:

For instance, it is of no interest to our customers if we try to use the same type of screws in as many of our vehicles as possible. Nor is it in any way important for the brand character of the respective vehicles. It would be a different story, however, if the customer had the feeling that the interior of a Saab were largely the same as a Chevrolet’s.

*cough* corporate radio *cough*

Anyway. This is a long one but well worth a read for those of you that are interested in the future. GM Europe, in contrast with its sibling in North America, is going along OK at the moment and if you believe Mr Forster, that’s only set to grow, which has positive implications for Saab along the way.

This speech will give you some insight as to why.

Thanks to our unnamed speech provider.

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Good afternoon, ladies and gentlemen,

I am happy you could join us here today, and hope you are having a good day.

It is certainly a good day for us – just like the last two weeks have been very good for us at General Motors Europe.

On March 14, our turnaround was officially confirmed. It took six years for GM Europe to overcome its crisis and return to profitability. Six years and a good three billion dollars. And the fact that our workforce was open and ready to cooperate also played a key role – that’s something that we recognize and greatly appreciate.

Today you have already gotten to know many different aspects of GM Europe. Now I’d like to give you some insight as to why this turnaround was so difficult, what we have learned from it, and what risks we still face. And then I’ll of course give you an overview of our plans for the future and explain why we are so confident about the future and these developments.

Ladies and gentlemen,

In the past two years, the public doubted the future viability of General Motors. Many people saw us on the way to burying our long-established heritage. A heritage that has an incredibly rich tradition: GM has been the world’s largest automaker since 1929.

We have 12 car brands and build 9.1 million cars annually. In 2006, we achieved record sales of over 207 billion dollars – 12 billion more than in 2005. This is also a top position globally. We operate on all continents and hold a global market share of around 13.5 percent. We are, however, very aware of the fact that size alone is not the decisive criterion for success or failure in today’s world.

General Motors is still working on dealing with one of the largest crises in the company’s history, but today we see considerably more positive development throughout the world than in the past years. This development has taken even stock market analysts by surprise, so that GM’s future is being evaluated much more positively than just even one year ago.

The latest figures published underscore the fact that General Motors is once again on the right road. But we can and will not rest, and are very aware of the reality of the situation we are in.

Ladies and gentlemen,

GM Europe has already gone through this crisis and is all the stronger for it. Last year, GME sold over 2 million cars in Europe, more than ever before. We increased turnover by 1.3 billion to 33.2 billion dollars, a plus of 4 percent. Nevertheless, we suffered losses of more than 3 billion dollars between 2000 and 2005. Which makes it all that much more important that in 2006 we made an after-tax profit – 227 million dollars – for the first time since 1999.

How did we get to this success? In 2001, the management team faced an array of challenges. But there were also some real opportunities. At that time there were already intensive efforts taking place to reverse the negative developments.

GM Europe’s business was dominated in terms of volume by the Opel brand. Focus was on solving problems with quality at that time. There was a lack of important models and modern diesel engines. Our design language was not clear, we were losing profile and brand identity. This resulted in significant losses of market share and overcapacity, as we hadn’t been able to adapt production processes quickly enough. The suit we were wearing had gotten too big – it needed to be tailored a bit.

The other brands also needed work: Saab had too few models, Chevrolet as a volume brand didn’t come until later. At the same time, there was too much individual development and too little sharing of components within GME, a result of the company’s decentralized management. Today we know that the European daughter brands were left to fend for themselves far too long, and were not integrated enough into GM’s global engineering and manufacturing organization.

These existing challenges came along with the economic slump that kept not only European markets in a vice for a long time. Restructuring successes in the company were overtaken by negative economic developments faster than they could be shored up with the next success. There was a dire need for action.

We didn’t waste any time: for example, we launched the restructuring program “Olympia” at Opel in 2001, which resulted in a host of concrete, fast and long-term successes. But the German economy was not yet anywhere near its low point, so that ultimately Olympia was not sufficient for Opel’s long-term restructuring. To be perfectly honest, the fact that this recession lasted so long took us and many other companies by surprise.

So how did we finally manage the turnaround at GM Europe?

Without exaggeration, it was a tremendous act of strength and will. We have adjusted production capacity to prevailing market needs. We have had to reduce our workforce by around 13,000 employees from 2005 to date, which has not been easy for anyone, including me. But it is good that these painful changes were made within a socially responsible process agreed upon with employee representatives, because it was unavoidable for the future of the company and the security of the remaining jobs at GME today.

Since I started here, my credo has been to make the necessary, long-term reduction to structural costs, shore up investments in the product portfolio and push improvement of profit margins. Today 1/3 of the improvement in results is due to the reduction of costs, while 2/3 is from an increase in revenue and contribution margins. We have also made exceptional progress in productivity, which I will come back to later.

That GME is in a better position today is also due to the fact that we have overhauled our sales strategy and reduced unprofitable business areas. Just take the fleet and car rental businesses: you can reach high unit numbers but mostly only very low margins here. In the business year just ended, we consciously forwent these sales. Instead we managed to compensate the decline in sales in this area with high profit margin sales in our traditional business area.

Ladies and gentlemen,

In addition to these aspects, there were four areas that played key roles in our successful turnaround:
– Quality
– Design
– Technology and innovation
– Multi-brand strategy with clear brand management

My colleague Peter Dersley already went into some detail on what quality with GM Europe means. An example of the pay-off of these efforts: recently the Meriva was identified as the car with the fewest faults among 113 cars in the “German TÜV Report 2007”. It is the first Opel model in 20 years to earn this honor. The Agila, Corsa, Astra and Vectra also scored above the average of the inspected vehicles.

Our improved quality is also confirmed by other experts. Studies conducted by J.D. Power, the TÜV Report and tests by ADAC put us at the top in Europe.
Progress in quality improvement has also had an effect on profit thanks to lower warranty costs, which were 7 percent lower in 2006 than the previous year. Our customers’ confidence in our products grows parallel to improvements in quality. And this is good for our brand image.

The second point is design, which goes far beyond just interior and exterior design. Bryan Nesbitt has already gone into some detail on this, so I’ll keep it short.

At GM, design means already influencing the design of global vehicle architectures. Because these architectures later form the framework of portfolio planning with brand-specific and regional aspects. So design at GM is not just a creative discipline, but also a coordinating, integrative one. This wide-reaching task is also the reason for our substantial investment in our European Design Center in Rüsselsheim. The worldwide lead management of compact and mid-size class GM vehicles is also at home here.

Ultimately design creates emotions, and I’m surely not telling you any secrets when I say that purchasing a car has a lot to do with emotions. I am convinced that our design language has never been clearer, better and more emotional across all GM brands than it is today.

The third aspect I mentioned is technology and innovation. Saab is currently the market leader in biopower and is traditionally known for its brand-typical turbo engine technology. The democratization of high-end cars and environmental technology in the 1980’s and 1990’s greatly advanced the Opel brand. Today we are “best in class” in many areas with innovative chassis systems, flexible interior concepts and environmentally compatible propulsion systems.

We are going to keep the development of marketable innovations a top priority in future, with the emphasis on marketable. Some of our competitors have learned that not every innovation designed by engineers meets with overwhelming customer interest and establishes itself on the market.
(e.g. Super brake assistant/Mercedes; four wheel steering/Mitsubishi, Honda; Wankel technology/ Mazda).

The fourth point refers to our multi-brand strategy and unambiguous brand management, together with innovative marketing. This only works with distinctly defined delineation. I think my colleague Jonathan Browning made that very clear this morning. And it is exactly here that we in Europe have a real advantage over other parts of the world.

Successfully positioning and tending to important brands is without a doubt one of “old Europe’s” strengths, with its cultural diversity. No other continent has borne so many leading brands as Europe. And the brands that are clearly positioned and managed enjoy global demand and success.

GM Europe had a lot of catching up to do in this area, but is now on the right road – which is why brand management is one of the main focal points of our work at GME. GM Europe has regained ground with the growing success of this brand strategy. With our brands, we are today also capable of meeting the varying cultural preferences of customers in different markets. Our car mix is better and more varied than ever before. We can address almost every target group with exactly the right car. In this way, we want to cover the various market segments as completely as possible, while avoiding overlapping wherever we can thanks to our multi-brand strategy.

Almost every automaker today has a number of brands. But GME’s different brands and models are not interchangeable. We don’t build global cars. Our objective is to intensify the distinctive brand worlds, which were presented to you earlier, despite the highest possible levels of shared technical architectures and components. This is how different brand worlds are created and maintained.

You heard earlier today how our brand worlds are positioned in the individual brand presentations, and were able to experience this during the test drives.

Take our successful repositioning of Chevrolet, for example. The progress it has made since its Daewoo days is remarkable. The market accepted and ultimately rewarded us for our courage in changing brand names. Despite initial scepticism, even internal, I admit, the new name quickly established itself in Europe. Today we are having no less than a sales boom with Chevrolet in Western, and particularly in Eastern Europe. Russia is currently one of our group’s strongest growth markets. Sales in other Central and Eastern European markets are also giving us plenty to be pleased about. And there is great potential in this region.

In a country like the Ukraine, for example, the population totals more than 47 million, but only about every tenth person owns a car. Last year’s vehicle sales there totalled 431,000 cars.

It is because of Chevrolet’s resounding success, particularly in Central and Eastern Europe, that we have taken the decision to considerably increase production capacity at our new plant in Saint Petersburg. Instead of the 25,000 to 30,000 units initially planned, the annual production rate will be around 70,000 Chevrolet cars in future.

Demand for the Opel Corsa and Astra is also rising in the dynamic growth markets of Eastern Europe, where these models are enthusiastically received by the press and public alike. Compared to 2005, Opel was able to more than double its sales volumes in Russia and the Ukraine last year. Just a few weeks ago the new Corsa won the “Autobest 2007” trophy, which is awarded by East European automotive press journalists. Overall, our efforts in the growing East European markets are paying off and leading to a significant growth in volume.

Our success in Western Europe is a result of noticeably higher profit margins. This is especially difficult to achieve due to the highly saturated markets in this region, and the enormous competitive pressure that comes along with that. The decline in prices in the Eurozone alone over the past ten years amounts to almost ten percent. That our profit margins have risen in spite of that is partly due to our reduction of unprofitable fleet business, which I mentioned earlier, and also to the fact that our customers today order high-value equipment variants more often. The main reason for this is the customer’s increased confidence in our group’s products  a confidence based on excellent product quality, as well as state-of-the art technology and exciting design.

Ladies and gentlemen,

In addition to strong brand management, further integration in all business sectors is a key factor for GM Europe’s future. This begins at the design and engineering level, continues with parts purchasing and culminates in the highly demand-oriented production process  a process which General Motors has already successfully implemented and will introduce to all plants worldwide in the coming years.

Integration is an especially important subject for production. The keyword here is “Interbuildability”, meaning that an architecture can now be built in multiple assembly centers around the world.

The practical implementation of “Interbuildability” is already in full swing. The new Opel GT is built at the GM plant in Wilmington, Delaware, together with its roadster brothers Pontiac Solstice and Saturn Sky.
They are built in accordance with the “GM Global Manufacturing System” (GM GMS), a standardized manufacturing process followed in all plants to ensure the same high production standards.

From 2008, our plant in Rüsselsheim will not just be assembling the new Opel mid-size class models. Saab models with the same architecture will also be produced in Rüsselsheim. So several models from two or more brands will be manufactured on the same production line for different brands.

This strategy enables us to react much more quickly to changes in the market, while also integrating technical innovations into our manufacturing. Production can be variably adjusted to needs and to demand, which gives us much more flexibility and enables us to run our plants at optimal capacity.

Our common architectures allow for great differentiation among our brands in areas which are relevant to the customer. For instance, it is of no interest to our customers if we try to use the same type of screws in as many of our vehicles as possible. Nor is it in any way important for the brand character of the respective vehicles. It would be a different story, however, if the customer had the feeling that the interior of a Saab were largely the same as a Chevrolet’s.

The development of a vehicle architecture and its use in series production is therefore a dynamic process, involving all relevant departments and regional brand design centers.

For a decentralized global player which is networked on all levels, this poses an extremely complex logistical and communicative challenge, which has a lasting effect on brand positioning. But this philosophy and working structure also means that we can achieve enormous increases in productivity.

The result of this new group structure is that costs are reduced, productivity improved and we are now able to offer limited-volume niche models off the same architecture, which in the past we could not develop and market profitably.

By coordinating product development work all over the world, we’ll realize the economies of scale that a company the size of GM should.

This approach will make it possible for GM to reduce future development and prototype costs by up to 40 percent, and to cut the number of different vehicle architectures by half  without the cars losing their individual brand identity. On the contrary, these freed-up resources can then be invested in developing and producing new, additional variants, such as vehicles in the growing crossover and roadster segments.

We also will realize a 20% reduction in material costs and 25% reductions in both engineering costs and overall investment. And ultimately that’s how success will be measured… how much we save, and how much we earn.

As financial experts you will be interested to hear that despite the enormous restructuring efforts at GM Europe, investment did not fall victim to the cost constraints during this time. In fact, substantial investments were made in production and development.

In 2006 alone, General Motors invested billions of dollars in research and development. You can already see the result in our latest models, such as the new Opel GTC Concept. In 2007, GM’s overall investment in product will increase by one billion dollars! (7 bill $ to 8 bill $).

But even more importantly, at no point were the resources for product innovations reduced. Between 2001 and 2006, GM Europe invested around 14 billion dollars in research and development, design, optimizing production processes and realigning all business areas. This investment has paid off and already boasts lasting success with the realization of the multi-brand strategy. Today, GME is more efficient and streamlined than ever before.

Ladies and gentlemen,

At this point I would like to shortly address the environmental debate, which has been so hotly argued over the past few weeks. It goes without saying that the subject of the environment belongs to an automaker’s comprehensive corporate strategy. My colleague Jamal El-Hout presented our three-tier strategy to you today, so I will not go over it again now.

But I would like to stress one thing: I do not understand the polemic of the past few months. In my opinion, a few interest groups are simplifying things too much. I am speaking for GM Europe, and I would like to make it clear that with our three-tier strategy, we have now for many years been following a path which leads to demonstrable improvements in emissions. We clearly and confidently communicate this approach, because there is certainly no reason to hide in the shadows with all of our efforts in this area.

Ex-minister Renate Künast (Bündnis 90/The Green Party) has announced her visit to the Opel plant in Rüsselsheim in mid-May. I welcome this, as Ms. Künast will then see that GM Europe is light years away from missing current trends, but rather has had the right answers to the challenges of the future for quite a long time now.

GME already offers 26 vehicles with CO2 emissions under 140 g per kilometer, and by offering particulate filters for all its diesel passenger cars, Opel assumed a leading role in the German market in 2006. This initiative was similar to the brand’s catalytic converter initiative in 1989. At that time, Opel was the first automaker to equip all gasoline models with three-way catalytic converters ex works, and in doing so set a new industry standard.

The consumption and emissions of our ultra-modern engines are permanently optimized by our engineers. We also have forward-looking products in our portfolio, which is why GME, together with Opel, is the German market leader for natural and biogas-powered vehicles. General Motors is also the world leader in bioethanol vehicles, predominantly in North and South America, and Saab is the trend-setter in Europe with its biopower technology.

As you know, in the long-term we see the automobile’s future coupled with hydrogen-based fuel-cell propulsion. We have engineers and technicians researching this technology at the fuel-cell laboratory in nearby Mainz-Kastel. We also just announced in Geneva that we will have a demonstration fleet of up to 10 fuel cell vehicles in Europe early next year. But the production maturity of this technology is still a way off.

Until then, the E-Flex system we presented in Geneva and hybrid propulsion systems are important transition technologies. That is why GM continues developing these technologies together with its partners and is still considering where they can be most meaningfully applied.

Of course the pre-requisite is that the market justifies our investment and a corresponding demand is generated by the right political conditions. Ultimately it is the consumers who will influence this decision, and they also require incentives from governments to buy this technology.

A good example of this comes from Sweden, where the government stipulated that filling station operators had to install ethanol fuel pumps throughout their networks. And biofuels enjoy tax advantages in Sweden. I find it particularly good that ethanol-powered cars get preferential treatment in terms of being able to drive into and park in the Stockholm city center. The incentives for using alternative fuels are considerably more attractive than they are in Germany. In Sweden, Saab is the market leader in bioethanol-powered vehicles.

I believe that environmental goals can be accomplished most effectively with an integrated approach that engages automakers, governments, fuel providers and consumers. A first step can be a change in vehicle taxation systems, which is why we see taxation based on CO2 emissions as reasonable. But we do think it is important to also to take into account whether the CO2 emissions are produced by a biofuel-powered vehicle, whose carbon dioxide emissions are not increasing the global CO2 levels in the atmosphere, or from a fossil fuel-powered vehicle. There must be a significant difference in the taxation of biofuel-powered vehicles to increase the incentives for consumers to switch to alternative fuels.

Regardless of which solution we have in focus: environmental technology in cars must remain affordable. Consumers must be able to afford it, so that it spreads and thereby has greater impact.

Ladies and gentlemen,

As you know, there lies an opportunity in every crisis. We have given you a detailed look into GM Europe’s situation and future strategies today, and as you can see, we have taken advantage of the opportunity presented to us, and pulled out all the stops, turned every screw, and transformed GM Europe into a forward-looking company ready for the future. From today’s perspective, we are very well positioned and can approach the challenges that face us with confidence.

Within all this optimism, one thing remains clear: it has never been so important to constantly scrutinize all our processes and regularly put them to the test as it is today.

Competition in the automotive industry has never been so tough – especially here in Europe. Our industry continues battling massive overcapacities, which new competitors from China are exacerbating. In this respect, it would be more than negligent of us to now lean back and look at the successful restructuring with an air of self-satisfaction. Our success lies in the future and we want to shape it ourselves.

When it comes to quality, we are already at the top, and we want to consolidate and build on this leading role. Although we have already achieved a great deal, there is still potential to improve and grow.

The motto for design is: beauty sells first. The many awards and prizes our concept vehicles have won are best proof of this. A clear design language also helps to keep the brands distinctively different from one another.

Beauty alone is not enough however, and that is why modern technology and innovations are further essential elements and important for customers. But only when they offer obvious benefits. Innovations can not be an end in themselves, and must above all be affordable.

Finally our multi-brand strategy. Ideally, it allows us to provide products to a customer throughout their entire motoring life.

Our strategy really bears fruit when all areas interact with each other. They are the cornerstones for the success of our company. In the past six years, we have done everything to ensure this strategy works. The result is a new company, and General Motors Europe is ready to reap the rewards of its hard work.

Thank you for your attention – I’m happy to take any questions you may have now.

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