GM Chief Executive Announces US$500-mil. Investment in Brazil and Argentina

General Motors (GM) Chairman and Chief Executive Officer (CEO) Rick Wagoner yesterday announced in São Paulo (Brazil) a US$500-million investment in the company's operations in Brazil and Argentina for the development of a new generation of small vehicles for emerging markets. The investment also includes the expansion of GM's Brazilian product development centre (see Latin America: 17 July 2007: GM to Announce US$350-mil. Investment in Latin America for New Car Model—Report). According to GM's press release, the investment includes two major elements:

• The development of a new family of small vehicles that will be built in Argentina and Brazil and sold in emerging markets. There will be upgrades to GM's plants in Rosario (Argentina) and São Caetano do Sul (Brazil).
• The expansion of GM's product development centre in Brazil, including a new engineering building in São Caetano do Sul, as well as new equipment and infrastructure to support the product development work on the new model and underpin the growing role of GM Brazil in the company's global product development process. GM will hire an additional 700 engineers for the centre.

"With the improved economic environment in Argentina and Brazil, we are proceeding with our next phase of investments to support our continued growth in Latin America and around the world", Wagoner said. "GM has a rich history in the Mercosul [Mercosur] region, and we look forward to continuing our growth for many years to come", he added.

"We have been growing our engineering resources in key emerging markets like Brazil, China and India—not only for development of vehicles for their own markets, but for other emerging markets as well", Wagoner went on. "This investment will enable us to take full advantage of the expertise we have in Brazil and support our planned local and global sales growth", he claimed.

The president of GM’s Brazilian operations, Ray Young, added that the investments will be made over the next three years at the two plants and that the new line of small vehicles will likely be launched around 2011.

Outlook and implications

Young announced the company's intention to make South America its third-largest market in March (see Brazil: 15 March 2007: GM Eyes Brazilian Expansion Following Record Results) but then indicated investments nearer the US$1-billion mark (see Brazil: 18 October 2006: GM Brazil President Wants US$1 bil. Budget for Expansion). GM is actually to invest around half of that in its South American facilities, but more will follow if the division can build on its current growth. The announcement forms part of a global strategy to grow in emerging markets as the company seeks to compensate for losses in its core U.S. market. By gaining traction in emerging markets, including China, Russia and India, GM is aiming to reduce its reliance on the U.S. market for volumes and profits. Its South American unit will thus become a core division with regard to this strategy, and the investment in a development facility will make GM Brazil an important cog in the company's platform development strategy.

Young candidly added that the growth in Brazil "was a surprise for us". Demand has been so strong that GM has been unable to meet it for all of its products, with customer waiting lists for five models, Young added. GM plans to add shifts to boost output and eliminate bottlenecks in the second half of 2007 to meet the demand. However, although GM trumpeted its growth in the region, the reality is that the company has lagged behind the overall market rate in both Brazil and Argentina, and notably has trailed its chief competitors—Volkswagen (VW) and Fiat. GM's Chevrolet brand dropped from first place in 2004 to third last year in Brazil, despite a 12.8% rise in volumes for the brand; this lagged behind the overall market, which grew by 13.7%. Chevrolet held a 23.9% share of the passenger car market in the country in 2006, a 2.4-percentage-point reduction since 2004. In the first half of 2007, GM's Chevrolet again lagged behind the market, its passenger car sales growing 19.1% to 199,173 units, against an average market growth rate of 25.9% in volume terms.

As early as November last year, GM confirmed that it was to invest in its Argentine plant (see Argentina: 2 November 2006: GM Confirms Investment in Argentine Plant) and its planned new small-car range. It is now confirmed that GM will develop the new range in Brazil and build it for the local market at its ”Alvear” plant in São Caetano do Sul for the booming domestic market, while Argentina will become the hub for certain variants of the model for export to the Mercosur region and other emerging markets. GM's decision to invest in Argentina had appeared under threat following the recent energy crisis in the country, but the company is now trusting that the government can overcome the infrastructural problems and ensure a reliable environment (see Argentina: 25 June 2007: Growth of Argentine Auto Sector at Risk Due to Energy Cuts).