GM Addressing Changing Market to Keep Profits Flowing
General Motors continues to take proactive and evasive action to ensure sales and profits remain intact even as U.S. auto sales level off and consumers increasingly choose crossovers and SUVs over cars.
In announcing second-quarter earnings today, Chairman and CEO Mary Barra assured investors the automaker is remaining disciplined by reducing production and keeping incentives from piling up and eating into the bottom line as automakers fight for share in a declining sales market.
Incentives were actually down from the first quarter, Barra said, as sales remain on pace in North America.
GM does have more than a 100-day supply of inventory, but volumes will go down in the second half of the year with 13 weeks of downtime planned. Some of that is to curb bloated car inventory and some is retooling, including the plants that make the full-size Chevrolet Silverado and GMC Sierra pickups.
GM will bring inventory back to the industry norm of a 70-day supply by the end of the year, said GM Chief Financial Officer Chuck Stevens. The downtime will reduce production by about 150,000 vehicles, many of them slower-selling cars.
Barra said retail sales of crossovers had their best quarter ever, and the automaker is well poised with four new CUVs coming. Almost the entire crossover lineup has been updated including the Chevrolet Equinox and GMC Terrain and the larger Chevy Traverse, Buick Enclave, and GMC Enclave.
The CEO did not go into specifics about plans to pare the car lineup. The Detroit News cites sources who say a number of nameplates could be discontinued in the next few years including the Chevrolet Impala, Buick LaCrosse, Cadillac XTS, and the tiny Chevrolet Sonic. The Chevy Volt could be replaced by a hybrid crossover or SUV.
Barra said the automaker recently launched new compact and midsize architectures for vehicles such as the Chevy Cruze and Malibu, and the platforms should last for two or more life cycles and be flexible enough to accommodate crossovers. “We have taken an over-the-horizon look at where we are going, and the architectures leave us well-positioned as the market transforms,” including rolling out new crossovers to capitalize on that growth.
GM is not alone. Ford will stop making the Focus in North America and import the small car from China. A new Fiesta has been introduced for the rest of the world—but not North America. The full-size Taurus was also updated for China only, suggesting it will eventually be imported as well, or discontinued altogether. And the C-Max will go away, but Ford has new electrified crossovers planned to fill that gap.
And Fiat Chrysler Automobiles CEO Sergio Marchionne has famously said sedans are not good business. He reduced his car portfolio to large sedans including the Chrysler 300 and Dodge muscle cars. Hyundai has dropped the full-size Azera.
Meanwhile, Barra noted that the Bolt EV goes on sale nationwide on August 1, and the car is pulling in many customers new to the Chevy brand. And GM has a test fleet of 180 autonomous vehicles testing in the dense traffic of downtown San Francisco. GM believes plug-in hybrids and electric vehicles are the best vehicles for autonomous driving, and they are equipped with a full sensing suite that includes Lidar. The Super Cruise hands-free technology on the Cadillac CT6 underwent a final 160,000-mile validation prior to launch this fall.
GM reported net income of $1.66 billion for the quarter, down 42 percent, but the results include a $770 million loss because the automaker no longer has operations in Europe with the decision to sell them to the PSA Group. GM had $37 billion in revenue. The profit driver is still North America where pretax earnings fell by $270 million to $3.48 billion. And China had record sales for the quarter.