One the my favorite aspects of my job is reading what everybody else has to say about the same subjects. For instance, On Nov. 1, General Motors (NYSE:GM) released its sales results for October. One headline read, "GM Blows Past U.S. Sales Estimates," while another read, "GM Sales Slip 1.7%."
The fun thing is, both headlines are accurate. Which one you connect with depends on whether you're a glass-half-full or glass-half-empty investor. Let's look at the details and try to better understand whether GM's October results were, in fact, something to get excited about.
Just the facts
GM's sales this year have been tough to compare on a year-over-year basis because of the company's major reduction of fleet sales, which generated less than 20% of total sales in October, down 330 basis points from the prior year. Furthermore, GM's fleet sales to rental companies, the less desirable fleet-sales channel, were down 19% in October and remain 29% lower year to date compared with the prior year.
GM's retail sales, on the other hand, increased 2.5% over the prior year, but that wasn't enough to offset the decline in fleet sales -- leaving GM with a total decline of 1.7%. Still, that's a solid result compared with Bloomberg's forecast for GM's sales to drop nearly 7%.
Also, keep in mind that this October had two fewer selling days, which also pressured sales comparisons. So for GM to post a 2.5% increase in retail sales, despite two fewer selling days and a plateauing market, is fairly impressive. That's evident in GM's market-share gains, with its retail share gaining 1.6% in October to reach 18.1%. If you're keeping track, and GM certainly is, that's 16 months of retail share gains out of the past 19 months.
Handful of highlights
Chevrolet, which is GM's highest-volume brand, helped drive GM's total results higher, along with Buick. Chevy's retail sales were up 6% during October from the prior year, marking its best October overall since 2004. Buick was a similar story, with retail sales gaining 7% over the prior year, the brand's best October since 2003. Not only that, but Buick also recently moved into third place for car reliability in Consumer Reports' recent survey. No American brand has ranked that high since CR began the survey in the early 1980s.
One tailwind for GM this year has been its average transaction prices, which are retail transaction prices after sales incentives. GM's ATPs checked in at $36,155 during October. That figure far overshadowed the industry average by $4,650, and it was $1,000 higher than GM's own results during the prior year. While you have to take monthly incentives with a grain of salt, as the results are choppy throughout the year, GM's incentives as a percentage of ATPs were 11.7%. That was slightly better than the industry average of 11.8%, and it will be an important figure for investors to watch as the U.S. new-vehicle market plateaus. If sales competition heats up amid a plateauing market and incentives as a percentage of ATPs rise too high, it'll quickly erode the record profits GM has enjoyed over the past year.
The factors to watch from here on out won't be year-over-year comparisons, which is what most headlines tout. The two most important factors for GM investors will be retail market share and incentives as a percentage of ATPs. Those two factors were great during October, in addition to sales that beat estimates by a wide margin. So all in all, it was a more impressive result for October than many headlines suggest.