Middle East market critical for ailing General Motors

Tensions in the car industry have been partly eased thanks to the US Government's decision to lend General Motors (GM) and Chrysler $17.4 billion (Dh63.8bn). The emergency loan, with tough conditions attached, is intended to rescue the car manufacturers, which were considering filing for Chapter 11 bankruptcy.

Mike Devereux, President, General Motors Middle East, tells Emirates Business how important the industry is to the US economy and how critical the Middle East is to the ailing firm's hopes of making a rapid recovery.



We all know that the auto industry has been heavily and adversely affected by the global financial crisis. How bad is the situation?

We are facing unprecedented challenges, the worst global financial credit crisis in more than 70 years. There is a tightening of consumer credit, and historically low consumer confidence has paralysed consumer spending. The entire US auto industry, not just General Motors, has been hard hit.

Carmakers can't get credit to complete their restructurings and put new advanced technology vehicles into production. Customers can't get credit for new cars and other purchases, and consumer confidence has fallen to an all-time low.

Suppliers are losing business and can't get credit to keep them afloat until the industry recovers. Dealers can't get credit to finance inventory and other routine business needs.

The US Government has saved GM and Chrysler from going bankrupt in the next three months by lending $17.4bn. The "emergency loan" has come with tough conditions to force the companies to restructure. But prior to the announcement there was debate about whether the auto companies should be bailed out.

It is a loan, not a bailout. The US credit freeze and the closure of capital markets are resulting in a severe liquidity squeeze at a time when manufacturers' cash flow from operations are devastated by plummeting consumer demand.

No other US industry generates more employment, annual economic output, exports, research and development investment and retail business than the US auto industry. GM directly employs about 96,000 people in the US. We have 6,500 dealers across the country that employ another 340,000. Last year, we purchased more than $30bn of goods and services from more than 2,000 suppliers in 46 states. Our pension programme covers nearly 475,000 retirees and spouses, and our health benefits extend to about one million Americans. We have about one million registered stockholders.

Given this liquidity crisis, is GM talking to the UAE Government or any other GCC governments about financial assistance?

We are not in conversation with the government. We are in conversation with the corporations that own our dealerships and our business partners in the region. In almost every part of the Middle East we have very strong partners and our strategy is to partner with them and deal with the banking situation together. As regards any conversation with the government, we leave that to the dealers in the market.

What is the situation in the Gulf in terms of sales and lending activities?

More than 60 per cent of GM's sales come from markets outside the US. This year I think GM is going to sell 150,000 units in the region out of the total of 8.5 million to nine million – roughly two per cent of total sales. Year on year we have been increasing our sales by 13 per cent, that is double or triple the rate four or five years ago. And I hope that over the next five or six years we could be in the range of doubling that. A lot of that will have to do with the UAE and GCC industry. We used to have rejection rates for auto finance of around five per cent but now it's 20 to 30 per cent. We haven't seen a huge drop, probably 10 per cent in the last 60 days. Our expectation is that it is going to pick up again and as we see it banks are already starting to free up credit once again.

Which countries in the GCC have been affected by the credit crisis?

Some of the markets have been hit. Not so Saudi Arabia because most buyers there are cash buyers. About 70 per cent of our businesses in the UAE is financed rather than purchased with cash.

Are you planning any job cuts or reductions in your marketing budgets?

We are not making any cuts. We have about 220 people at the Dubai World Trade Centre and we also have a Middle East distribution centre in Jebel Ali with around 55 people. We are not cutting any of those people.

We still have a number of positions needing to be filled next year as we continue to anticipate growth in the Middle East. It is a growth market for us and we need to invest into it.

We have very strong marketing budgets both this year and going into the next year. We have even more new products scheduled for the balance of the year and 2009, including the new CTS-V, Escalade Platinum, GMC Sierra Denali, H3T, Chevrolet Traverse, Malibu, Camaro and Cruze. We also continue to be committed to the region through investments such as our $73 million parts distribution network and training programmes.


PROFILE: Mike Devereux, President, General Motors Middle East

Devereux became President of General Motors Middle East last month.

He moved to Dubai from GM's head office in Detroit where he was Executive Director, Digital Marketing and Customer Relationship Management (CRM), and Global Process Leader for Digital Marketing and CRM.

Devereux has held numerous sales and marketing positions during his 24 years working for GM.

He has accumulated experience in digital marketing and had a stint in the Middle East in the early 1990s as Parts Sales
District Manager.

He joined GM full-time in 1989 as Marketing Co-ordinator, GM Service and Parts Operations – International, having begun his career with the company in 1984 in Canada as a co-op engineering student.

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