Can GM Win Back the North American Market?

On Thursday, General Motors (NYSE: GM  ) reported generally in-line fourth quarter results. As expected, Europe remained a significant drag on profitability. Since going public again in late 2010, GM has generated nearly all of its profit in the North American region. However, GM's North American market share has slipped during that time, raising doubts about the sustainability of this business. For Q4, adjusted earnings before interest and taxes in North America was down slightly over the prior year's period. Moreover, North American market share dropped from 17.5% to 16.6%.

GM hopes to bounce back in North America by introducing about 20 new models over the next two years. However, while new products should provide GM a nice boost, the company will face headwinds from two directions: a new F-150 based on the "Atlas" concept from Detroit rival Ford (NYSE: F  ) , and stronger pricing competition from Japanese automakers, enabled by the weak yen.

K2XX: Will it be enough?
In the next year, GM is refreshing its pickup trucks with models based on the new K2XX architecture. As I discussed earlier this month, the transition could be pretty bumpy, because GM entered the year with very high inventory of last-generation pickup trucks. However, GM bulls believe that this overdue truck overhaul will increase the competitiveness of GM's truck lineup, improving profitability over the next few years.

The problem is that market-leader Ford is due to introduce its own updated truck, based on the Atlas concept, next year. To improve fuel economy, Ford is planning to cut 750 pounds compared with the current F-150 pickup, while also featuring an active grille and stop-start technology. Ford's goal is to reduce fuel consumption by 20%. If Ford delivers on this goal, GM could find that it is still behind the technology curve in the pickup segment. Pickup owners tend to be very loyal to their favorite brands, and so GM needs a clear advantage to make significant market share gains in the segment.

Competition ramps up again
GM's 2012 North American profit declined somewhat compared to 2011 despite a double-digit increase in the market . The main cause was a strong rebound by Japanese auto giants Toyota (NYSE: TM  ) , Honda (NYSE: HMC  ) , and Nissan from the 2011 tsunami, which led to massive supply disruptions. During 2012, Japanese automakers offered more incentives in order to regain lost market share .

In 2013, GM could face even tougher price competition from its Japanese competitors. The yen has fallen by more than 15% against the dollar over the past year. That reduces costs for the Japanese automakers for two reasons: Some of the cars they sell in the U.S. are built in Japan, and many components for the cars they build in the U.S. are made in Japan. With many costs denominated in the now-cheaper yen, Japanese automakers are saving a lot of money. Toyota, Honda, Nissan, and others may pass some of that savings along to consumers to maintain their market-share momentum in 2013.

Risky business
Investors around the world are wondering whether GM has what it takes to reclaim its former glory.  But as we've seen, GM faces a number of challenges even in its best market, North America. Fool contributor John Rosevear has put together a brand-new premium research report telling you what you need to know about GM and its turnaround. If you own or are thinking about owning GM, then you don't want to miss this report. Click here now to get started.


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  • Report this Comment On February 16, 2013, at 8:51 PM, neamakri wrote:

    "whether GM has what it takes to reclaim its former glory" ~ that is hard to say. They still change body styles every year. They still change interiors every year. They still focus on $50,000 cars, trucks, and SUV's, instead of $25,000 cars like the Honda Accord that I bought. In other words, same ol' stuff as before bankruptcy.

    I sat in a Volt at an auto show and was very impressed. Two things, though, (1) price too high, and (2) battery maker went bust "A123".

    GM's former glory did not allow for high quality foreign competition. It is a shame because GM has top notch engineers and designers.

  • Report this Comment On February 17, 2013, at 12:04 AM, neamakri wrote:

    OMG! GM just announced a new model Chevy SS rear wheel drive muscle car; Overpowered and expensive. What did I just tell you....that is NOT the family sedan. I want to be in the next GM board meeting to slap some sense into them.

  • Report this Comment On February 17, 2013, at 1:40 PM, TMFGemHunter wrote:

    I don't know what you mean about changing body styles and interiors every year. These cars get redesigned ever 4-6 years.

    The most successful global automakers focus on high-end cars. I'm particularly think of the German automakers (Daimler-Benz, BMW, and VW (Audi)). The Japanese automakers all have luxury brands, too, although they tend to be better at making money from regular sedans. But even Toyota wants to get in on the pickup profits.

    There's nothing wrong with making good entry-level cars. But it's never going to replace the profit made from luxury vehicles and pickups. GM is right to focus on improving its share of those higher margin markets.

  • Report this Comment On February 18, 2013, at 9:26 AM, TMFMarlowe wrote:

    @neamakri, are you unaware of the existence of the Chevy Malibu, a popularly-priced family sedan that stacks up fairly well against the Accord?

    If you are, maybe THAT is the problem, not GM's decision to launch a niche RWD performance product.

    @TMFGemHunter, in a market where consumers still feel strapped and MPG is high on consideration lists, GM needs to have profitable, competitive products across the spectrum. Fortunately, it does: The Cruze and Sonic are its best-ever small cars (not that that's saying much, but it's saying something -- they're pretty good. And they're made-in-US and profitable).

    Also, I challenge your assertion: The "most successful global automakers" at the moment are GM's two chief rivals, VW and TM. They don't focus exclusively on high-end cars, they seek to build class leaders across the price spectrum.

    VW's making a lot of money from Audi (thank you China), but it's hardly the company's "focus" -- VW "focuses" on cars across the price spectrum, from tiny cheap-cheap emerging-market models to Bugattis. And while Lexus has been a success, TM's best-selling car is the world's best-seller: the Corolla.

    John Rosevear

  • Report this Comment On February 18, 2013, at 1:51 PM, TMFGemHunter wrote:

    John,

    I agree that it's important to have profitable vehicles across the spectrum. But even for best-in-class automakers, the profit per vehicle on a small car (like the Corolla) is miniscule compared to a luxury car, a pickup, or an SUV.

    Perhaps I shouldn't have said "focus". But the most successful automakers are the ones that have the biggest share of the luxury market. Even Ford's success is largely attributable to its leadership in the high-margin pickup segment, as I'm sure you know. 90% of Ford's profit last year came from pickups.

    It's important for GM to stay relevant in basic cars, but at $1000-$1500 in profit per vehicle, GM would need to sell an additional several hundred thousand units (without cutting prices) to have a significant impact on profit. By contrast, regaining share with Cadillac and increasing pickup sales can have a much bigger impact on the bottom line.

    Adam

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