gm 2004 Annual Report Letter to Stockholders


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gm 2004 Annual Report Letter to Stockholders

  1. 1. Dear Stockholders: The cover of this 2004 General Motors Annual Report says, “Hands on the wheel. Eyes on the road.” What exactly does that mean to GM? It means we’re driving ahead with confidence…and we record for the sixth year in a row, with a profit of $2.9 billion. are well aware of the obstacles in our path. We are staying GMAC also continued to restructure its balance sheet and focused on designing and building the best-engineered, diversify its funding sources, significantly reducing its risk best-looking, highest-value cars and trucks that provide to adverse credit rating developments. millions of people around the world the freedom of mobility. Our global automotive operations had their second highest As I concluded in last year’s letter to you, becoming the best sales volume in GM’s history, with market share gains in is an unending journey, a constantly changing destination. three of our four regions around the world. We’ve come a long way on that trip. GM’s Latin America, Africa and Middle East region saw a GM has methodically and completely overhauled its opera- return to profitability and increased its market share to 17.4 tions since its financial crisis in 1992. Better productivity. percent. In Brazil, GM captured the No. 1 position for the Better technology. Better quality. Most important, better first time in its 79 years of operations there. Volume also cars and trucks. was strong in the Middle East, where sales were up 58 percent from a year earlier. Today we’re a far leaner, faster, more competitive and globally integrated company, well-positioned for continued growth. GM Asia Pacific continued to deliver very impressive results, While much better, we still have much work to do to become despite a second-half slowdown in China. For the year, GM the best. China’s sales increased 27 percent to nearly 500,000 vehicles, and market share again grew. And GM Daewoo The bumps along the road ahead are numerous and jarring: continues to expand its role in the GM family, with produc- global overcapacity … falling prices … rapidly escalating health- tion expected to grow to more than 1 million vehicles in care costs … unstable fuel prices … increasing competition 2005 as we leverage its considerable engineering and every year. In addition, as GM has improved, so have our manufacturing capabilities. competitors. Elsewhere in 2004, we took significant steps to address But despite these challenges, we continue to see a future some tough challenges. with growth opportunities that make this journey well worth the effort. GM Europe’s losses grew as competition intensified and pricing deteriorated further. In order to address our high-cost Mixed Results in 2004 position, we reached an important agreement in December In 2004, GM earned net income of $3.6 billion excluding with our European labor unions on a major restructuring plan special items, or reported net income of $2.8 billion, on that will help GME significantly improve our cost-competi- record revenues of approximately $193 billion. Solid figures, tiveness. On the revenue side of the business, the news at considering the tough competitive conditions in most of our GME was more encouraging as the successful launch of the markets around the globe. But overall, it was a year in which all-new Opel/Vauxhall Astra series helped increase GME’s we did not take the step forward we were aiming for. market share to 9.5 percent, its highest level in five years. There were some noteworthy successes. GMAC reported annual earnings growth for the 10th consecutive year, and a General Motors Corporation 3
  2. 2. In addition, our multi-brand strategy continues to gain speed Looking Back, Looking Forward with the expansion of the Chevrolet and Cadillac brands, As we move forward, it’s useful to pause and look back down which should add to GME’s share growth this year. We also the road we’ve traveled. plan to build on last year’s product success with the introduc- When my predecessor, Jack Smith, took over in 1992, he tion this year of the Saab 9-3 SportCombi, the all-new Opel/ instilled a business philosophy that still guides us today Vauxhall Zafira, the Astra 3-door and the Chevrolet Matiz. and is embodied in our cultural priorities: product excellence This February, GM and Fiat Auto S.p.A. announced the termi- and customer focus, act as one company, embrace stretch nation of our joint venture and equity relationship, which targets, and move with a sense of urgency. After more than began in 2000 in an initiative to reduce our cost structure in a decade of driving our business with this philosophy, GM Europe by combining our purchasing and powertrain manu- today operates far differently. facturing activities, and collaborating on future models. The For example, in 1992, we had 27 different purchasing organ- savings from these joint activities over the past five years izations just in North America. Today we have one global and GME’s access to Fiat diesel engines addressed very organization using a common, globally based sourcing critical needs. But as competitive circumstances changed process. Given GM’s size and global footprint, this move for each company, and after several management changes continues to represent a competitive advantage. at Fiat, both companies decided that the joint venture and equity relationship were no longer appropriate. Another area where GM has undergone radical change more recently is in product development, engineering and planning. While the dissolution of the agreement resulted in a charge We have gone from a highly decentralized structure, with 11 to earnings, the resolution enables ongoing cost savings and different engineering centers in the United States alone, to excellent diesel engine capability and availability for GME, a single U.S. engineering organization, and this year to one thus resulting in an overall positive net return to GM on this globally integrated product development organization. The relationship. institution of common business processes and computer In North America, our largest market, automotive profitability systems, and the ability to fully utilize our global design and was disappointing, reflecting continuing pricing pressures engineering talents, will mean more new cars and trucks, due to challenging competitive conditions and ever-rising shorter lifecycles, lower costs and higher quality. We see health-care costs (see related item on page 7). many opportunities here going forward. On the positive side, we continued to make progress in the We also see plenty of opportunity ahead in continued produc- key areas of productivity and quality, and several important tivity improvement. According to the Harbour Report for sales milestones were reached in the key U.S. market: North America, GM has had the highest annual productivity ● GM set the industry records for total truck sales and SUV improvement among all automakers over the past six years. sales, and once again sold more full-size pickups than any This is the direct result of applying a common manufacturing other manufacturer. system around the world, and leveraging our global manufac- turing engineering organization, which will provide us with ● Chevrolet sold more cars than any other make, passing more flexibility and savings down the road. Toyota, and had its best overall sales year since 1988. ● GMC set a sales record of 602,064 trucks, the 11th Our improvement in quality in the United States, as measured time in the past 12 years that it has broken its previous by J.D. Power and Associates, is well-documented. What is sales record. less known is that we have had similar improvements in our Europe, Asia Pacific and Latin America, Africa and Middle East ● Cadillac continued its strong performance, with the hit CTS regions as well. sedan posting its best sales yet in its third year of produc- tion, and the new STS debuting to widespread critical GM also has aggressively taken advantage of the many growth acclaim that ranked it among the best sedans in the world. opportunities in the highest-potential markets around the 4 General Motors Corporation
  3. 3. John Devine Rick Wagoner Bob Lutz Vice Chairman and Chairman and Vice Chairman, Chief Financial Officer Chief Executive Officer Product Development and Chairman, GM North America General Motors Corporation 5
  4. 4. world. China is the headliner here, but we’re also growing in But GM also is making a difference in cleaning up the envi- important markets such as India, South Korea and Russia – ronment here and now. Since 2000, we have reduced our a trend that will continue in the years ahead. facilities’ energy use by 9 percent globally, and their total waste by 11 percent. GM also is on course to meet its target And our renewed focus on designing and building the most of reducing global CO2 from its facilities by 8 percent from compelling and highest-value portfolio of cars and trucks 2000 through 2005. is paying dividends in the ever-stronger reviews our new vehicles are getting in the news media. We’re expanding GM has more fuel-efficient cars and trucks across more the number of derivatives of our vehicle architectures, doing vehicle segments in the United States than any other auto- more brand-building, high-performance cars and trucks such maker, foreign or domestic. GM offers 19 different models as Cadillac’s highly regarded “V series,” Opel’s “OPC” line in the U.S. market that get 30 miles per gallon or more. and Chevrolet’s legendary “SS” models. No other manufacturer can make that claim. Only GM. We’re also getting more creative in our marketing, with a Around the world, our 324,000 employees make a difference greater focus on convincing consumers of the great value every day in their communities, helping others through GM inherent in our cars and trucks. Volunteer Plus International and GM GlobalAid. Through these organizations, we responded last year to the tsunami Only GM in Southeast Asia and Africa, and the hurricanes in the For example, we recently launched a new corporate adver- southeastern United States. tising campaign under the theme, “Only GM.” It’s part of an effort to use the GM brand more aggressively and with Picking Up the Pace more purpose, to show that we’re leading the industry in GM is unlike any other automaker, unique in its history, size ways that only GM can. and capabilities. We’ve been the global automotive sales leader since 1931, but we know we have to work hard to The “Only GM” campaign began by highlighting our plans to earn the right to maintain that leadership. We’re doing that equip all our cars and trucks sold to retail customers in the day after day. United States and Canada with OnStar and StabiliTrak, GM’s electronic stability control system. We want to bring this kind Our challenges on the road ahead are many. To address of safety, security and peace-of-mind to all of our customers them, we are picking up the pace by combining and fully because it’s the right thing to do, and because only GM can leveraging GM’s resources on a truly global basis … for the do it. We also want potential customers to know that GM first time in our nearly 100 years of history. offers them great value, and that buying GM matters. (For We’ve set the stage for that move with a track record of more details, go to steady improvement in our operating capability around the One very important way in which it matters is GM’s continued world. commitment to develop more environmentally friendly propul- This is a journey rife with opportunities. We’re driving hard to sion systems for our cars and trucks. At this year’s North take advantage of them to reach our goal of becoming the American International Auto Show, we introduced our latest best automaker in the world. prototype, the GM Sequel, to show the progress we are making toward our goal of producing affordable fuel-cell powered cars and trucks. That remains a longer-term project. For the nearer term, GM and DaimlerChrysler AG recently joined forces to leverage our patented two-mode full-hybrid system for a range of cars and trucks around the world. This Rick Wagoner joint development initiative promises to make fuel-efficient Chairman and Chief Executive Officer full hybrids more affordable by spreading the cost over a Detroit, Michigan larger volume. 6 General Motors Corporation
  5. 5. The challenge of health care. Where to start? First, as a nation, the United States needs to bring all of its capabilities in quality, productivity and information technology to the health-care industry. The sustained, rapid increases in the cost of health care in the United States have had a tremendous impact on GM’s For example, GM, Ford Motor Co., DaimlerChrysler AG and profitability, as they have for many other companies. This the United Auto Workers announced earlier this year an is a major competitive issue for all of American business – electronic-prescribing initiative in southeast Michigan to especially manufacturers – in an increasingly global economy. reduce errors, improve efficiency and lower costs. Consider these numbers: Second, we all need to become better health-care consumers. Today’s health-care consumers generally know far less about ● Health-care costs in the United States have increased the drugs they take, or the quality and efficiency of their sharply every year since 1991, often at double-digit rates. health-care providers, than they do about the cars and trucks In 2003, they were about 15 percent of gross domestic they buy. product, at least 30 percent higher than in the next-most- expensive country. Third, we need to encourage access to affordable health-care ● Many employers cite rising health-care costs as their big- coverage for all our citizens. It’s simply not acceptable for gest problem, and that’s true for state governments as well. over 45 million Americans to be without health-care coverage. This causes a tremendous cost shift to those that do provide ● GM spent $5.2 billion on health care in 2004 for our coverage, through higher bills to cover the costs of the 1.1 million employees, retirees and dependents through- uninsured. out the United States. Those costs amounted to about $1,500 for each vehicle we manufactured in the United A significant part of the problem is that so-called catastrophic States last year. health-care costs for 1 percent of the population generate ● Our foreign-domiciled competitors have just a fraction of 30 percent of the nation’s overall health-care costs. It is these costs, because they have few, if any, U.S. retirees. important to concentrate efforts on ensuring the best care In their home countries, their governments cover a much for those with chronic diseases and high-cost conditions, greater portion of employee and retiree health-care costs. and to stabilize the private health-insurance system by addressing these costs. ● Unfortunately, America’s high health-care costs don’t buy the best care. In fact, according to the Organization for Fourth, we need to reduce the high rate of inflation in Economic Cooperation and Development, the United States health-care spending, beginning with the very high cost of ranks 12th out of 13 industrialized nations in 16 top health prescription drugs. And the easiest way to do this is by indicators, things like infant mortality and life expectancy. expanding the availability and use of generic drugs. The impact of the health-care burden is particularly frustrat- And most important, we each need to take better care of ing for GM, because over the past decade, we have made our own health – eat well, exercise, quit smoking … things huge improvements in our operational competitiveness. we all know we should do. GM also has worked aggressively for years to lower our costs These are just some of the major steps that need to be on many fronts, with our health-care providers and with employ- taken to resolve this crisis. But progress will lag unless all ees on prevention and wellness activities. We’ve worked with of the key constituencies involved in this important issue – providers to help them eliminate waste and errors in their business leaders, the health-care industry, consumers, processes, much as we have done in our assembly plants. Congress and the Administration – come together to address But we have reached a point of diminishing returns. it with an open mind and a can-do spirit. This is a crisis, and it can be resolved only if all of those Failing to address the U.S. health-care crisis would be the involved – business, the health-care industry, government worst kind of procrastination, the kind that places our and consumers – work together toward finding solutions. children and our grandchildren at risk, and threatens the There is no silver bullet. health and global competitiveness of the U.S. economy. General Motors Corporation 7