DETROIT – General Motors Corporation, the world’s largest automotive company for 76 years, hits the century mark in 2008.  The venerable sales leader held on to its title in a disputed squeaker with rival Toyota.

Many assumed the crown would pass to Toyota but when both automakers released their global sales figures in late January GM reported it sold 9,369,524 vehicles while Toyota reported sales of 9.366 million.   Strong international sales did the trick for GM.

It was a major victory for GM to have kept the sales crown, even though its sales in the U.S. were down 6%. But most of GM's sales, 59%, are now outside of the U.S., and GM earned impressive growth in many parts of the world -- up 74% in India and 18% in China.

“We set a record in China with more than a million vehicles sold. We nearly doubled our sales in Russia to an all-time record of more than 258,000 vehicles delivered. And we set a record in Brazil with nearly a half-million vehicles sold,” John Middlebrook, GM vice president, Global Sales, Service and Marketing Operations said today. “This is the kind of emerging market growth that fuels our global performance. Customers are responding to our fuel-efficient and dynamically-designed product lineup around the world.”

General Motors’ figures were disputed by Automotive News, the influential trade newspaper because GM included in its totals the 516,435 vehicles sold by the SAIC-GM-Wuling joint venture in China.  In his story, Charles Child’s reasoned that since GM only owns 34 percent of the joint venture – with the Chinese companies Shanghai Automotive Industry Corp. owning the controlling 50.1 percent and Wuling Motors the remaining 15.9 percent – these sales should not be included in GM’s figures.  That publication gave the nod to Toyota.

We asked Toyota’s spokesperson,John McCandless, how the company felt about the sales crown being snatched from their grip. “Frankly, this debate is not even on our radar screen or sonar scope. Is GM fudging its sales numbers as it has been caught doing in the past?   Ask them. But I doubt it,” said McCandless.

GM spokesperson, John McDonald responded via email, “We have always included Wuling in our global sales figures and fully disclosed our equity position. We have the maximum allowable equity interest, and Wuling vehicles are marketed as part of GM's China strategy.  We market vehicles under the GM Wuling brand. We fully disclose our interest and legally report the sales. Automotive News appears to be the only organization that elects not to include Wuling, and they disclose their reasons for doing so. That's their decision.”

In all fairness, Ford and Honda count sales figures from their partially owned ventures (Mazda and Guangzhou Honda respectively) and even Toyota has chosen its own method of tallying up results to suit its needs, according to automotive analyst Jim Hall, vice president of 2953 Analytics of Birmingham, Mich.  

“No audit company can independently verify all aspects of any manufacturers’ sales figures.  Toyota has taken a strategy of only increasing its production volumes when it is profitable to do so. There have been examples, including in the U.S. with the Camry, two generations ago, where Toyota trimmed production so it had zero leftover stock at its dealerships before the new model came out.  That way, Toyota didn’t have to discount the old model and it meant more profit per vehicle,” Hall said.

If one counts the Wuling sales for GM, the 2007 total was the second best global sales record in the company’s 100-year history and marked the third consecutive and fourth time (2007, 2006, 2005 and 1978) GM sold more than 9 million vehicles in a calendar year, according to a company spokesperson.

What’s shocking for some is the fact that GM’s supremacy is even a question.  The company’s dominance was once taken for granted but Toyota has steadily narrowed the gap. Looking back to 1995, GM had sales of 8.17 million to Toyota’s 5.08 million.  This says a lot about Toyota’s global sales growth, especially in North America, where it has racked up sales records, year after year while GM has seen its domestic sales decline.  

Toyota has also begun penetrating Europe and other world markets, the territories where GM has been making its biggest gains.  Some analysts believe that Toyota Motor Corp. will take the global sales crown from GM in 2008.

Toyota downplays the importance of this quest. “Sales numbers are just the result of our efforts to build quality vehicles, offering value, enjoyment, dependability, so that we please our customers.  We are grateful that so many customers in the world chose our vehicles.  Being number 1 or 2 in sales is not important.  Being the best in satisfying the customer is,” said McCandless.

Bragging rights aside, does the sales crown matter?  Both General Motors Vice Chairman Robert A. Lutz and David Cole, chairman of the Center for Automotive Research, contend there are far more important fundamentals at work in the industry.

 “Would we like to be the world’s largest automaker?” Lutz asked rhetorically while addressing attendees at the Automotive News World Congress, a meeting of hundreds of industry managers, analysts, and others in Detroit. “Well, of course, who wouldn’t? And, will we continue to fight tooth-and-nail for every possible sale this year and beyond in the hopes of doing so? Absolutely, however, the bottom line is that we are running the business in the best interests of the customers, employees, and shareholders, period. And that’s what we will continue to do no matter what.”

Known as a “car guy,” Lutz overseas GM’s global product development. A former Marine who grew up in Europe, he started his career at GM in 1968 and remained there, in Europe, until 1971. He also served stints at BMW, Ford, Chrysler, and was chairman of the battery maker Exide until he rejoined GM in September 2001.

This could be the year that Toyota becomes the world’s leading car company, noted Cole, who also has GM roots. Working in Ann Arbor, Michigan, with his own analyst firm, the Center for Automotive Research (CAR) after teaching for years at the University of Michigan, Cole’s father was the late Ed Cole, GM president, whose accomplishments included helping to create the small-block V8 engine.

“I have a slide though where I say market share is nice, but profits are essential,” David Cole said. “If you’re not making money, you’re not playing the game. You can go bankrupt, number one. You never go bankrupt being profitable.” Being number one in global production is a not a big deal to either GM or Toyota, because the goal is to be profitable, he said.

For General Motors this meant negotiating a favorable labor agreement with the United Auto Workers (UAW), its largest union and they did.  The company is now poised to be profitable even if it sells fewer vehicles.   After years of complaining about an approximately $3,000 “cost gap” per vehicle that they claim hobbled them in their struggle against their international rivals, GM appears to have “won” the concessions it needed to close this gap, according to Sean McAlinden, a Vice President at the Center for Automotive Research (CAR).

He predicts that, “the big three will hire and retire heavily in the next few years,” and that the new lower priced workers will lower their labor costs.  The new agreement should benefit all of the domestic carmakers but especially GM for several other reasons.  McAlinden’s says that GM will once again be profitable because the company has more workers who are eligible to retire (63.5% versus 31.2% at Ford and 30% at Chrysler), and it was able to underwrite (with cash) the shifting of its employee health care costs to a Voluntary employees' beneficiary association, or VEBA, that will be administered by the UAW while Ford had to pledge equity.  GM will also reap more benefits from elimination of the automatic Cost of Living wage increases (COLA) for its new hires, and an elimination of the defined benefit pension plan that will be replaced by a 401k.  

While most savings will take years to kick in, the new drug plan alone saved the company $300-million last year.  When you add in less restrictions on the Job Banks (that pays laid off employees) and more plant closings with all of the other savings, the company should cut the “cost of active U.S. Labor by almost $2.4 billion a year in 2011 compared to 2007.  VEBA will increase cash flow by another $2.8 billion per year and more in later years,” said McAlinden.

While the picture begins to look rosy by 2011 it’s still going to be rough sledding between now and then.

“This is going to be a tough year as it is,” CAR’s David Cole said. “Toyota No. 1 or GM No. 1, it doesn’t make a difference. The question is what is going to happen with the economy this year.”

But General Motors is much less dependent than ever before about what happens in the United States, because its global business is growing, Cole noted.

 “We always take a very U.S.-centric view about General Motors and its history but in fact General Motors is increasingly a global corporation. I always draw people’s attention to that because living in the United States we always tend to be U.S-centric and forget that there is a great big world out there beyond the 50 states,” said GM vice chairman Bob Lutz.

General Motors became an international company (not counting when it expanded into Canada very early in its history) when it purchased the German automaker Opel in 1929. Its international brands now include Vauxhall, Holden, SGM (Shanghai General Motors) and increasingly the subject of the disputed sales figures, SAIC-GM-Wuling in China, as well as the GM (the former Daewoo)
Automotive Technology.

“One of the things I get asked is, ‘Bob, what do you think of global leadership?’ I don’t care because frankly, it doesn’t matter,” Lutz said.

Being number one may not matter but sales do matter and GM’s global sales have been growing, on average, four percent a year for the past decade but Toyota’s have grown at a rate of 60 percent. The one market where GM has seen a steady decline or no growth has been North America where consumers have punished the auto company for its past sins – vehicles that didn’t live up to customer expectations – while Toyota has surged based on its reputation for quality and reliability.

Many have noted that it will take GM a long time to rebuild trust with consumers. GM will have to provide outstanding products to woo customers back. Unlike the products it built in the 1980s and 1990s, new cars like the Chevrolet Malibu may finally prove GM can give buyers the quality they’ve grown to expect.

“The Malibu is a really important vehicle because it is a high volume, mid-size platform,” Cole said. “The fact that it is the car of the year and has been given so many accolades has a positive effect.

I’ve driven it. It’s amazing. It drives like a car that is worth twice as much,” the analyst continued. “I’ve never seen anything like it. We drive a lot of the different products. Another one that blew me away was the Saturn Aura, which was the early sibling to the Malibu.”

Both the Malibu and Aura were “well executed and perform like cars that are much more expensive the way you look at ride and handling, or rigidity, or structural dimensions. I used to teach courses on automotive engineering and internal combustion engines, so I understand this stuff very well. It’s the real deal.”

One of the criticisms of the previous iteration of the Malibu was the cheapened interior. Of course, one of the areas where auto companies are forced to cut costs, when vehicle programs go over budget, is the interior. But it’s the interior where the consumer “lives.”

With its sales increases and profits, Toyota has had the financial wherewithal to create superb vehicle interiors and concentrate on the fit and finish, look, and other unseen improvements, such as improving a vehicle’s aerodynamic performance by concentrating on the design of components underneath the vehicle.

GM, though, has been working to get its vehicle program costs under control, and with the Malibu, it’s apparent that they invest in the interior, Cole said.

The promise of enticing new products for the North American market is a harbinger that things are poised to improve at GM over the long term but if the ultimate battle about which company is number one is looked at in terms of profitability GM has a long way to go without a stunning upswing in sales --- even if it saves billions of dollars as projected.  GM hasn't announced its fourth quarter earnings yet, but it lost a huge $38 billion in the first three quarters of 2007. Toyota, reaped record profits of nearly $15 billion for 2007. On the 2006 Fortune 500 list, GM ranked number five, just above Toyota, with $207 billion in revenues, but posted a $2 billion net loss. On the other hand, Toyota earned $204 billion in revenues and earned $14 billion in profits.

In those terms –Lutz and the GM board of directors probably would have to agree that Toyota is now the world’s automotive leader and has been for some time.  But it looks like the General isn’t ready to offer its concession speech just yet.

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