General Motors (NYSE:GM) said that its U.S. sales rose 4% last month, on strong sales of its most profitable products: crossovers, large SUVs, and pickups. Its retail sales rose 5% from a year ago.
GM's sales gain outpaced the overall market's 1.1% decline, and the General's share of the U.S. market rose 0.9 percentage points from a year ago, to 17.5%. But GM's incentives also rose, according to early estimates, raising some tough questions.
Crossovers and pickups drove GM's gains
GM's 4% gain reflected year-over-year increases of 3.4% at Chevrolet and 17% at GMC, while sales fell 9.4% at Buick and 8.6% at Cadillac.
What worked: crossovers, pickups, and GM's big SUVs. GM is in the early stages of revamping its crossover lineup with a series of redesigned models. Both old and new models did well last month:
- An all-new 2018 Chevy Equinox will begin arriving at dealers soon, but sales of the current model were up 13% last month.
- The smaller Chevy Trax (up 37%) and its upscale Buick Encore sibling (up 11%) both posted gains.
- GM's biggest crossovers had mixed results. The Chevy Traverse was up 14%, but the Buick Enclave's sales fell 28%, possibly because of tight supplies; new versions of both are expected later this year.
- GMC's all-new-for-2017 Acadia posted a 26% gain over its predecessor's year-ago result. Cadillac's all-new XT5 crossover outsold its predecessor SRX's year-ago totals by 7%.
GM's full-size pickups also had a very strong month, aided by what was reportedly a huge year-over-year increase in incentives. Sales of the Chevy Silverado (up 17%) and GMC Sierra (up 16%) both far outpaced the market.
But those sales gains may have come at the expense of some profits: According to J.D. Power figures made available to The Motley Fool, the average incentives on the Silverado jumped 56%, to $6,996 per truck. Sierra incentives rose 82% from a year ago, to $5,315 per truck, according to the data.
Last but not at all least, most of GM's big (and hugely profitable) truck-based SUVs also had a strong month:
- Chevy Tahoe sales rose 18%.
- Chevy Suburban sales rose 9.4%.
- GMC's Yukon (up 23%) and extended-wheelbase Yukon XL (up 15%) both gained.
- Only Cadillac's Escalade (down 21%) posted a year-over-year decline.
Cars were a tougher sell
Aside from the brand-new CT6, sales of all of Cadillac's sedans were down 25% or more. Cadillac is suffering more than most brands from the swing in buyer preferences toward crossovers, as it has only one model (the XT5); at least two all-new Cadillac crossovers are expected to join the lineup over the next couple of years.
Buick's sales were weighed down by big slumps for its Regal (down 36%) and LaCrosse (down 49%) sedans. The handsome LaCrosse was all-new last year and received positive reviews, but big sedans are a very tough sell right now.
They're a tough sell at Chevrolet, too: Sales of Chevy's big (and very well-regarded) Impala sedan fell 22%, while the (also very well-regarded) Malibu slipped a worrisome 42%.
There were a few bright spots in GM's car lineup, however:
- Sales of the all-new compact Chevy Cruze rose 18%.
- The Chevy Volt, revamped last year, is finding its way to more enthusiasts: Sales were up 62%.
- Last month, 952 examples of Chevy's all-electric Bolt EV were delivered. GM is just beginning its nationwide rollout of the Bolt; monthly sales totals should increase substantially over the next few months.
Fleet sales and inventories
GM said that its sales to fleet customers rose 2% year over year. Rental-car fleet deliveries fell 2%, while deliveries to commercial- and government-fleet customers were both up slightly.
As of Feb. 28, GM had 900,681 vehicles in inventory, or a 91-day supply. That's still somewhat high, but down significantly from a 108-day supply at the end of January.
The upshot: It's getting tougher to find sales growth in this market
ALG, the analytics unit of TrueCar, estimated that GM's incentives in February totaled $4,550 per vehicle, or 12.5% of its $36,400 average transaction price. Both figures are high -- the incentives total is up 13% from a year ago -- but the percentage is the tell: Any time incentives exceed 10% of average transaction prices, investors should be concerned that the automaker is reaching for sales in a sluggish market.
The real concern is that those incentives cut into profit margins. GM's margins in North America have been strong in recent quarters, a trend that investors would very much like to see continue. Rival Ford Motor Company (NYSE:F) seems willing to settle for some modest sales declines in order to maintain per-sale profitability; GM may have to decide to accept some declines of its own in order to preserve its strong margins.