Commentary

General Motors’ second-quarter net profit of $891 million, compared with year-ago’s net loss of $3.4 billion, is certainly something for Detroit’s auto industry to crow about.

That’s especially so following close on the heels of Ford Motor’s unexpected second-quarter profit of $750 million.

But while both U.S. auto makers are benefiting from major cost cutting, including massive employee buyouts and plant closings, as well as a better mix of products, both continue to lose money on their critical North American operations.

And that’s where the global village comes in. Both Ford and GM are being carried by strong overseas sales. And both are looking for ways to better leverage their far-flung foreign operations.

For example, Ford is looking at a rebounding South America to produce a new entry-level car at its Sao Bernardo do Campo, Brazil, plant as early as 2008, while its Australian unit will begin building the Focus small car in 2011 for the domestic and export markets.

GM plans to produce a new family of compact vehicles in Brazil and Argentina by 2010, and also has tapped its GM Holden subsidiary in Australia as its center of global expertise in developing rear-wheel-drive cars.

Meanwhile, both auto makers are driving hard to grow their operations in China, India and Russia.

But GM has one secret weapon that Ford does not. And that’s its GM Daewoo South Korean subsidiary, which celebrates its fifth anniversary as a company in October resulting from the purchase of major assets of the now-defunct Daewoo Motors – a former key player in its domestic market.

GMDAT President and CEO Michael Grimaldi recently jetted to the U.S. to apprise the Detroit-area Society of Automotive Analysts of his company’s growing role within the GM fold.

“We cannot stand still,” Grimaldi tells SAA members of his expanding operation, explaining that between 2005 and 2009 GM will invest $6 billion in GMDAT in the form of capital and new-product development.

That’s because GM has selected the Korean arm as its global design, engineering and manufacturing center for mini and small cars – segments that currently make up 20% of overall industry sales worldwide.

Rick Labelle, vice president-commercial operations, recently said GMDAT is on track to meet global sales targets of 800,000 completely built-up vehicles and 800,000 complete-knocked-down kits, for a total 1.6 million vehicles to be produced in 2007. Some 90% of these units are targeted for export to Europe, Asia and other regions of the world.

But even more opportunity lies in the U.S., where small cars are on the brink of becoming big business as fuel prices continue to escalate and proposed average corporate fuel economy standards tighten.

GMDAT already ships 175,000 vehicles to North America annually, including 94,000 Chevy Aveo hatchbacks and sedans, 72,000 Lacettis (sold in the U.S. as the Suzuki Forenza) and 9,000 Matiz minicars (sold in Mexico).

But more models may be on the way, Grimaldi says.

At least one of GMDAT’s upcoming trio of new minis, unveiled in concept form at this year’s New York auto show and also to be shown at Germany’s Frankfurt motor show in September, could make its debut here if the market trends in that direction.

While supplying small cars to North America is a strategy being examined by many major auto makers, GMDAT finds itself sitting in the catbird seat.

“Energy, the environment, alternative fuels all are issues the industry is concerned with,” Grimaldi tells analysts. “We are part of GM’s game-changer going forward.”

bmcclellan@wardsauto.com