Are the Recalls Hurting General Motors Company's Sales?

That's the big question on Wall Street's mind right now.

Apr 28, 2014 at 6:36PM


An all-new 2015 Chevy Silverado 2500HD High Country. GM's all-new heavy-duty pickups are just beginning to arrive at dealers. As supplies increase, GM's pickup sales totals should improve -- as long as the recall mess doesn't scare away buyers. Source: General Motors Company.

Analysts and investors always keep a close eye on monthly auto sales numbers, but they'll be taking an even closer look than usual when General Motors (NYSE:GM) reports its U.S. sales for the month of April later this week.

GM, of course, is dealing with a series of huge and long-overdue recalls related to an ignition-switch defect that is blamed for more than a dozen deaths. 

The question that analysts will be asking is this: Is the harsh publicity over the recalls starting to affect GM's sales?

We won't know the answer for sure until GM reports those sales numbers on Thursday. But if analysts' projections are on target, GM's sales look to be holding up pretty well so far.

GM's sales are still on track, say analysts -- for now
Analysts at TrueCar see overall U.S. auto sales rising 7.5% in April. And while they see GM's sales rising 6.5%, trailing the overall market's gain, they point out that GM's estimated spending on incentives was down year over year, while several key competitors are up significantly (and may see outsized sales gains as a result).

TrueCar Executive Vice President Larry Dominque said in a statement that "the Asian manufacturers turned up the incentive dial" while the Detroit automakers "remained more restrained."

TrueCar's estimates show GM's per-vehicle spending on incentives at $3,562, which is quite a high level -- but it's down 2% from year-ago totals. Meanwhile, TrueCar estimates that Honda's (NYSE:HMC) incentive spending is up 32%, and they see Nissan's (NASDAQOTH:NSANY) rising more than 27%.

And we should note that GM is going through a couple of model "changeovers" right now, in which it's selling down the last of its old models while beginning to roll out new ones to dealers. Those models include GM's big SUVs (the Chevy Tahoe and Suburban, the GMC Yukon, and the Cadillac Escalade) as well as the heavy-duty versions of GM's new pickups.

I've heard from a couple of GM dealers who report that supplies of Chevy and GMC heavy-duty pickups have been extremely tight for a couple of months now. That has likely had an impact on GM's overall pickup sales gains, which were trailing rivals' earlier this year. 

As the all-new models make their way to dealers, GM's overall pickup sales could improve further.

Despite muted sales, strong pricing gave GM good profits last quarter
Despite GM's muted sales gains in the first quarter of 2014, GM's profits on its new pickups (and other new vehicles) appear to have been quite strong. GM reported a pretax profit of just $557 million in its North American division in the first quarter, down from $1.4 billion a year ago -- but noted that its profit included the impact of $1.3 billion worth of recall costs. 

Factor those out, and GM's profits would have been up significantly, thanks to much stronger pricing on its new pickups and sedans. GM is able to ask -- and get -- higher prices on vehicles like the new Chevy Impala because they're much more competitive than the models they replaced. 

But will GM be able to sustain that balance -- good sales with very good pricing -- as the recall scandal drags on? 

If TrueCar's estimates are on target, it's looking pretty good right now. 

Is New GM's reputation holding up in the marketplace?
The events surrounding GM's recalls have touched off a major public outcry, several lawsuits, and a couple of criminal investigations. Meanwhile, GM is still scrambling to explain exactly what happened.

The damage to prebankrutpcy GM's legacy, which was already in rough shape, has been enormous.

But the vehicles affected by the recall were all made last decade. The decisions around the defective ignition switch were made seven, eight, 10 years ago. 

GM has been through a huge transformation since then -- new management, new finances, new business plan, and, as CEO Mary Barra has been assuring us, a new attitude.

At the very least, its vehicle lineup is completely different, and its latest models are hugely improved over what it was building a decade ago.

So far, customers seem wiling and able to make the distinction between troubled Old GM and improving New GM. As long as that continues, GM's profits should hold up.

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John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. 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.

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