It's About to Get Tougher for General Motors

Now that the numbers are rolling in, it's becoming clear that General Motors (NYSE: GM  ) had a solid 2011: Sales in the U.S. -- far and away the General's most important (and profitable) market -- were up 14% over 2010. That's well ahead of the industry's average of 10%, indicating that GM won some market share during the year. And when all the numbers are tallied, it's likely that GM will have regained its long-held title as the world's auto sales leader.

That's not bad for a company that some say should have died three years ago -- and for a company that is still very much in the midst of a major overhaul. But while the General's not in bad shape, the company may find 2012 to be a much tougher slog, even if the economy continues to improve.

The trends in December's numbers
While the full-year numbers are strong, GM's December sales figures were less impressive on the surface, just a 5% increase over December 2010's totals. But December 2010 was a particularly strong month for GM, and this past month's numbers are better than they might appear at first:

  • Fleet sales, GM's (and Detroit's) longtime bane, were up 17% -- but still accounted for just 19% of GM's total U.S. sales on the month. That's well below the 25% that GM's managers have cited as an ongoing target in the past, and it's a number that shareholders should feel comfortable with. Fleet sales -- a category that includes everything from pickups bought in quantity by contractors to rental cars to police vehicles -- are an important part of GM's business, albeit one that tends to carry relatively low margins. While a dependence on fleet sales to keep factories moving (something we'd start to worry about if the percentage of the total got above 30%) would be a danger sign, numbers like these are healthy.
  • Buick sales were down 12% versus last year, but a big chunk of that drop is because of the phaseout of the Lucerne, the biggest of Buick's sedans, which ended production a few months ago. A replacement for the Lucerne is thought to be in the works, but GM hasn't yet shown or announced a successor in this category. Chalk this one up to GM's ongoing product-line makeover.
  • Cadillac sales were down 2.7%, but it's a similar story there: The old mainstay DTS sedan was discontinued earlier in 2011, and its (much-improved) replacement -- a big sedan called the XTS -- is still a few months away from dealer lots. Meanwhile, sales of the CTS sedan and SRX crossover continued to be strong, with SRX sales up almost 25% over year-ago totals.
  • Chevy models showed considerable strength: Sales of the Cruze remained strong and well ahead of November's figures. And despite renewed competition from the Toyota (NYSE: TM  ) Corolla and Ford (NYSE: F  ) Focus, the Camaro continued its surprising strength with a 20% year-over-year gain, and as with rival Ford, sales growth with GM's pickup trucks continued to outpace that of the overall market. And despite the media kerfuffle over the possibility of battery fires, the Chevy Volt had its best-ever sales month in December, with more than 1,500 units sold.

While it may be a few days before we have global sales totals, GM's U.S. results suggest that the company is in good shape despite its ongoing product transitions. For shareholders, that's critical. While the company technically sells more vehicles in China, the U.S. is still where most of GM's profits are generated.

But December's industry sales totals came with a warning for GM: 2012 may bring a much more challenging sales environment.

The big challenge ahead
What was the number that should concern GM watchers? It's this: Toyota's sales were flat in December versus year-ago numbers. After months of sales declines in the wake of production disruptions caused by last March's tsunami in Japan, a flat year-over-year result suggests that Toyota's recovery is finally complete, and that poses a big challenge for the General.

The production challenges faced by Toyota and Honda (NYSE: HMC  ) in 2011 presented an opportunity for the General, which had just introduced its best compact eve: the Chevy Cruze. To its credit, the General made hay while the sun was shining, establishing the Cruze as the compact segment leader for much of the year despite (very) strong competition from Hyundai (OTC: HYMTF) and Ford.

But with Japan's recovery comes increased competition, as Toyota has made it clear that it will move aggressively to regain lost market share. And competition will be spiked further by Volkswagen, which has signaled that it will look to the U.S. for growth as its European home market has stalled. Meanwhile, Ford and Hyundai continue to move from strength to strength -- and Chrysler is mounting a surprisingly strong product offensive of its own.

For General Motors, which is furiously working on major new products that aren't scheduled to start rolling out until 2013, 2012 may prove to be a big challenge.

While it's possible we'll see GM's dividend return in the coming year, you don't have to wait to put the power of reinvested dividends to work in your portfolio. In a special new report, Motley Fool analysts identify "11 Rock-Solid Dividend Stocks," all great additions to a long-term investor's portfolio. This new report is completely free for Fool readers, but it'll be available for only a limited time -- get instant access right away.

Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors; and creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (5)

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.

  • Report this Comment On January 05, 2012, at 8:22 PM, alwaysup37 wrote:

    Why do all you news writers down play GM when the management team is probably the best in the business. No matter what GM does in selling more product than anyone else all of you people talk like it's an 'accidental occurance' because the other car companies 'stumbled' due to problems. Well, GM has their problems to, which by the way are well published. Regardless, I look forward to the Grand ole' Master whippin' butt in the car industry with or without your subtle 'scare tactics' in overblown news items. All the profit from the Jap cars go to Japan and create jobs for the Japanese. Does that make good sense for americans? How about an article on 'Buy American' for a refreshing change.

  • Report this Comment On January 05, 2012, at 9:39 PM, TMFMarlowe wrote:

    @alwaysup37, let's just say that it's clear that you don't read much of what I write.

    John Rosevear (GM shareholder, Cadillac CTS-V owner, and the guy who wrote this article)

Add your comment.

DocumentId: 1753158, ~/Articles/ArticleHandler.aspx, 4/23/2014 12:43:25 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