Why Toyota Is Beating GM; GM's price discount, about $1,500 per car, is now even worse than its cost disadvantage in the race against Toyota.

Byline: Allan Sloan

Auto racing isn't about just the car and the driver. If you've got to haul around a ton of stuff and the other guy doesn't, it's hard to be competitive. For years now, we've heard General Motors complain that it's being lapped in the United States by Toyota because it's got five retirees in the back seat for every two people actively building its vehicles,

while Toyota (U.S.) is virtually retiree-free. GM is weighed down by heavy "leg-acy costs" for pensions and health care, while Toyota has only a small pension plan, and its health-care costs per vehicle are barely a tenth of GM's.

But it's not quite that simple, racing fans. GM has another serious performance drag that has nothing to do with legacies. It has to do with price. Because GM vehicles aren't as attractive to buyers as comparable Toyotas, you can generally buy them cheaper.

And as we'll soon see, the revenue difference, which almost no one talks about, may soon be larger than GM's cost difference, which everyone talks about. The reason: GM has managed to reduce legacy costs by pressuring workers and retirees. But it can't simply muscle buyers into paying up for its vehicles, the way it can pressure retirees and workers to surrender some of their benefits. Buyers have to be persuaded, which is lots harder.

Now let's go crunching. Because Toyota sells more smaller vehicles than GM does, and fewer big ones, you need a "mix adjusted" number to be able to compare apples with apples. Ron Tadross, Banc of America Securities' chief auto analyst, puts the Toyota premium (or GM discount, if you prefer) at $1,500 a vehicle in the United States. GM won't confirm that number--but it doesn't dispute it, either.

Tadross also says that despite their sales price being $1,500 cheaper, GM vehicles are actually higher-cost than Toyotas, because GM's resale values are far lower. Lower resale values, of course, are one reason that GM can't charge as much as Toyota does.