Weak Truck Sales at GM

It's probably an indication of how bad things are in the auto industry when General Motors (NYSE: GM  ) can remain nonchalant about a three-week strike at the main axle and drive-shaft manufacturer for its trucks, American Axle (NYSE: AXL  ) . Although the strike has shut down all or part of 29 plants employing more than 42,000 workers, GM maintains it isn't hurting business.

The problem -- or the benefit, depending on how you look at it -- is that truck inventories remain high. Sales of GM trucks fell 20% in February.

Automakers recognize revenue for their cars and trucks when the vehicle rolls off the assembly line, not when you drive it off the lot. That's why GM CEO Rick Wagoner can say the first quarter will look bad but the underlying business remains unchanged. The trucks sitting on dealers' lots have already been accounted for in the books. If the company can reduce that inventory now, it'll write off the quarter as a bad one but can then focus on selling its new trucks beginning in Q2. When the strike ends and production begins anew, GM's "sales" are going to look robust.

Yet it's also why GM is in so much trouble. It will need to replenish that stock, but it doesn't mean that people are actually buying the trucks. GM may very well find itself in the same situation it was in before the strike. Moreover, General Motors had already reduced its year-over-year production goals for the second quarter by about 9% to 672,000 trucks.

GM can afford to play this game only so long. Toyota (NYSE: TM  ) has been heavily promoting its Tundra pickup, and the Ford (NYSE: F  ) F-150 still remains one of the most popular pickups, even if sales are soft. With oil at more than $100 a barrel and credit tight, truck makers need to fight over every last sale.

However, the damage is already spilling over to GM's other suppliers. Lear (NYSE: LEA  ) has laid off 1,100 workers at 10 plants, and Tenneco (NYSE: TEN  ) has laid off hundreds. With American Axle having been one of the more financially stable suppliers, a long strike would have a domino effect on its more precariously positioned rivals. GM may have to start bailing out other suppliers the way it is Delphi.

One Deutsche Bank analyst has pegged the cost of a three-month strike at American Axle at $3.5 billion worth of cash flow to GM. A company that reported a massive loss of $38.7 billion for 2007 can ill afford to be cavalier about what's happening at American Axle.

Put the parts together with these related Foolish articles:


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 601562, ~/Articles/ArticleHandler.aspx, 11/27/2014 10:19:43 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement