GM thrives in Latin America

But despite rumors this spring, GM's thriving Latin America operations are likely to escape the ax, analysts said.

The region is an important, low-cost manufacturing platform for the U.S. market. And to Latin American consumers, GM remains a respected brand with the highest market share -- 21% -- of any carmaker, said Guido Vildozo, an auto analyst with IHS Global Insight in Waltham, Mass. While GM's sales declined 23% last year in the U.S., they rose 3% in Latin America, and thanks to some timely government support, this year's sales are on track to match 2008's.

The automaker has been in the region for decades, opening its first factory in Argentina in 1925. It has kept ahead by continuing to invest billions of dollars, including on a new assembly plant in San Luis Potosi, Mexico, and a design center in Sao Jose dos Campos, Brazil, that the automaker hopes will become a source of cutting-edge know-how for gas-sipping cars it may someday sell in the United States.

"Latin America will keep its strategic role in the new GM," said Michel Pardal, chief Latin America market forecaster for J.D. Power and Associates in Troy, Mich. "GM has a good image, has been there for many years, and their engineers' capabilities are impressive."

In May, Italian automaker Fiat was said to be in negotiations to acquire GM's operations in the region as part of its bid to buy Opel. Fiat ended up gaining control of Chrysler -- and has plans to expand that automaker's undersized reach in South America -- but did not haul in Opel or GM's Latin America unit.

Perhaps because of those rumors, however, GM Brazil chief Jaime Ardila took the trouble last month to assure employees that not only would the unit remain part of GM, but slated investments totaling $1.5 billion would also go forward. Much of that money is going into a flex-fuel motor plant under construction in the southern state of Santa Catarina.

GM's Brazil operation, second only to its China outfit in foreign unit sales, has helped keep Detroit afloat. The company has "repatriated" annual profits of up to $800 million in some years this decade, at a time when GM's U.S. operations were bleeding cash, informed sources said.

Brazil has become a crucial stop on the career paths of company brass. GM Chief Executive Fritz Henderson and his predecessor Rick Wagoner both headed operations there earlier in their careers, and both have said that because of the region's size, complexity and importance, it's an invaluable training ground.

"The Brazilian operation of GM is one of the most successful in the world," said Alexandre Andrade, an economist at Tendencias, a Sao Paulo think tank.

Analysts expect GM to make Brazil, a world leader in vehicles that use ethanol and other biofuels, a key element of its survival plan, particularly in light of new fuel efficiency requirements being laid down by the U.S. government.

The first flex-fuel car model developed at the Sao Jose dos Campos research center is called the Prisma and will soon be in showrooms in Brazil. It is also slated for export, although GM has not said where. GM's Brazilian cars, including the Chevrolet Astra and Corsa models, are exported to Mexico and other Latin countries, though not to the United States. But with low labor costs compared with North America's despite a unionized workforce, that could change before long, analysts said.

"The Brazilian government wants its car industry to become a global exporter of 1 million cars a year and is working toward that goal," IHS Global Insight's Vildozo said. Overall exports from Brazil peaked at nearly 900,000 cars in 2005.

One element of uncertainty is that GM's Brazil operation has licensed the right to produce several small car models from the company's Opel unit, which was recently sold to a consortium of bidders led by Canadian auto parts maker Magna International Inc.

But because GM will retain 35% of Opel and is likely to retain control over much of the intellectual property developed at the European division, the Brazilian operation will probably still have the right to those designs, said Jeff Schuster, J.D. Power's global forecasting director.

GM has also invested big in Mexico, where it has 13,000 employees and four assembly plants. The newest is the $1-billion facility that opened in San Luis Potosi last year, which makes the Chevy Aveo subcompact for the Latin American market.

GM's Mexican division is a major supplier of cars and trucks to the U.S. market The unit exported just over 387,000 vehicles last year, most of which ended up in U.S. showrooms. Most of the automaker's Mexican exports are SUVs and trucks, including the Saturn Vue, Chevy Suburban, Cadillac Escalade, Chevy Yukon, Chevy Silverado and GMC Sierra.

Those vehicles aren't selling well at present, and exports this year have plunged. But analysts said they don't believe that GM's Mexican operations are vulnerable to sale or closure.

On the contrary, analysts said that with their low wages, high productivity and proximity to the U.S. market, those facilities stand to gain production lost in the United States.

Kraul is a special correspondent.