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GM: Mortgage meltdown will hurt sales

The crisis in the U.S. mortgage market has hurt U.S. auto sales this month, General Motors Corp. Vice Chairman Bob Lutz said on Monday.
/ Source: Reuters

The crisis in the U.S. mortgage market has hurt U.S. auto sales this month, General Motors Corp. Vice Chairman Bob Lutz said on Monday.

Lutz, who was in Louisville, Kentucky to attend an automotive industry conference, said he did not know how GM’s own sales had performed in April to date, but said he expected the whole sector would feel the impact of the stress on the housing finance market. GM and other automakers will report April U.S. sales results on May 1.

“The market as a whole has been a little weakish. That has come as a result of the housing market problems and the mortgage industry meltdown,” Lutz told Reuters. “A lot of people are finding themselves in a position of reduced affordability and that has had an impact, not just on us, but across the industry.”

GM, which has lost more than $12 billion in the past two yeas, has been struggling with high labor costs, stiff competition from Japanese automakers and slumping sales of profitable trucks and sport utility vehicles.

GM’s head of North American operations, Troy Clarke, in April said the automaker’s U.S. sales would be weaker in the second quarter as a softer economy, high interest rates and pressure on the subprime mortgage market dampen demand for new vehicles.

GM in March also said it expects results from finance company GMAC, in which it retains a 49-percent stake, to remain under pressure this year due to increased defaults in subprime mortgages or loans to borrowers with poor credit.

Weak housing starts have also hurt sales of high-margin pickup trucks, typically bought by construction workers.

The world’s largest automaker is in the middle of a sweeping restructuring that includes slashing more than 34,000 jobs and closing 12 plants.

As part of its turnaround strategy, GM is also cutting back on its fleet sales -- which are typically low-margin sales to daily rental companies and government agencies.

GM, known for decades of massive discounting, is also trying to stick to a new strategy of clearer, higher pricing and fewer incentives.

“We are obviously taking it easy on pricing,” Lutz said. “When you rely too much on incentives and on daily rentals, you trash your residual value.”

“We forced the market by jamming too many into the daily rental companies,” Lutz said. “We found out we would never win this thing unless we backed off on this policy of forcing the market.”

The new strategies are hurting GM’s U.S. sales and market share in a year in which it is expected to be challenged for the top spot in global sales by Japanese rival Toyota Motor Corp.