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General Motors' Sales Slip on Rental Fleet Cutbacks

By John Rosevear – Jun 1, 2017 at 10:20AM

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Fleet sales were down as planned, while GM's retail sales were up slightly on strong demand for its popular crossover SUVs.

General Motors said on June 1 that its overall U.S. sales dropped 1.3% from a year ago, largely due to a planned decline in sales to rental car fleets.

GM's retail sales rose 0.4% from a year ago, paced by strong results from its Buick and Cadillac brands.

GM's May U.S. sales: The raw numbers

Brand Total May 2017 Sales Change vs. May 2016 May 2017 Retail Sales Change vs. May 2016
Chevrolet 162,950 (3.8)% 126,451 0.3%
GMC 41,126 (5.2)% 34,869 (6.9)%
Buick 20,077 28.5% 17,360 11.5%
Cadillac 13,211 9.2% 12,708 9.8%
Total 237,364 (1.3)% 191,388 0.4%

Data source: General Motors.

How GM's result compared with rivals' 

The U.S. new-car market is almost certainly past its cyclical peak. At this point in the cycle, we expect to see up-and-down results as automakers adjust discounts and inventories in an effort to maximize sales, profits, or both. 

GM has so far negotiated these choppy market waters fairly well, generating a strong 11.7% EBIT-adjusted profit margin in North America in the first quarter. Some of that is due to the ongoing reduction in low-margin sales to rental car fleets. But some analysts had concerns about GM's soft retail results, even while talking up the strong demand for GM's crossover SUVs. 

A black Cadillac XT5 crossover SUV on a New York City street.

Strong crossover SUV sales were the story for GM in May. The new-last-year Cadillac XT5 continues to sell very well, at good prices. Image source: General Motors.

Here's Kelley Blue Book executive analyst Rebecca Lindland's take:

GM continues to follow a plan of reducing sales to low-profit daily rental fleet, but at some point their retail business needs to pick up in order to make up for the shortfall in sales, particularly with the Chevrolet brand, which fell nearly 4% year-over-year and is off 3.2% for the year. Cadillac's 9.2% increase for May pushed the brand into positive territory for the year, up nearly 1%. Buick was buoyed by its small and mid-size crossovers with the Encore, Enclave, and Envision accounting for nearly 75% of the brand's sales. 

Interestingly, SUVs accounted for over 70% of Cadillac sales, so both of GM's premium brands reflect the move in luxury away from sedans and to SUVs.

Not all of GM's rivals had posted results at press time, but the reports we had showed the mixed bag we would expect.

Automaker May 2017 Sales vs. May 2016
General Motors (GM -0.09%) (1.3)%
Ford Motor Company (F 0.79%) 2.2%
Fiat Chrysler Automobiles (FCAU) (1.0)%
Toyota (TM 0.57%) (0.5)%
Honda (HMC 0.23%) 0.9%
Nissan (NSANY -0.27%) 3%
Volkswagen (VWAGY -2.72%) (VW brand only) 4.3%

Data sources: The automakers.

What's working (and isn't) for GM in the U.S. right now

As usual, GM called out the high points of its month in a statement. Among them are the following:

  • Retail sales of GM's crossover SUVs as a group rose 19% from a year ago. Retail sales of the Chevrolet Equinox (a mix of outgoing and all-new models) and GMC Acadia rose 17% and 33%, respectively. The new-last-year Buick Envision had a strong showing with over 4,400 sold, while sales of the new-last-year Cadillac XT5 more than doubled. 
  • The midsize Chevrolet Malibu sedan posted a 40% year-over-year retail sales gain, in what has been an exceptionally tough market for midsize sedans. GM said it was the best sales month for the Malibu at retail since October 1980. 
  • Sales of the small Buick Encore SUV continued to grow, up 12% in May.
  • The GMC brand's average transaction price rose to $44,675, up $1,667 from a year ago.
  • Sales of Cadillac's big CT6 sedan jumped 44%, and its big Escalade SUV gained 21%. 
  • Overall sales of the Chevrolet Camaro rose 35%. (That's a big gain: Ford Mustang sales fell 24%). 
  • GM sold 1,566 Chevrolet Bolt EVs in May, the electric car's best month since its launch late last year. GM is still in the process of rolling out the Bolt to dealers in much of the country. 
  • GM's sales to rental car fleets were down 36% year over year, in line with the company's plan to reduce rental fleet sales. But its (more profitable) sales to commercial and government fleet customers were up 14% and 21%, respectively. 

But while it was a good month on balance, not everything is working well for the General at the moment:

  • GM's full-size pickups, the Chevrolet Silverado and GMC Sierra, sold a combined 60,004 units in May, down 4.2% from a year ago. Both of GM's pickup rivals gained: Ford's F-Series was up 12.8%, and FCA's Ram gained 16%.
  • Year to date, the Silverado and Sierra are down a combined 5.6%, while F-Series is up 8.5% and Ram is up 8%. The Ram outsold the Silverado in May and year to date. GM is losing market share in this high-profit segment. 
  • While retail sales of the Malibu were strong, overall sales fell 14%. Several other GM sedan models were also down sharply, including the Cadillac CTS (down 21%) and Chevy Impala (down 38%). 

What it means for GM investors

GM's first-quarter results showed us that its current approach to the U.S. market is generating good margins. But there are points of concern, including this big one: GM's inventories are swelling. As of the end of May, GM had a 101-day supply of vehicles in its U.S. inventory. That's much higher than most analysts consider ideal. (For comparison, Ford had 72 days' worth, a much more comfortable number.) 

GM reiterated on June 1 that planned factory shutdowns will reduce its inventories by about 100,00 vehicles as the year goes on, and that it expects to end 2017 with about the same days' supply it had at the end of 2016 (71). But it's something to watch: Too-high inventories could mean that GM's sales expectations were too optimistic, and that it might have to resort to heavier discounting (along with those plant closures) to clear out excess vehicles. That could hurt margins. 

That said, it's worth noting again that GM's formula worked out well in the first quarter. Hopefully, it'll work out well again when GM reports its second-quarter results in July.

John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool has a disclosure policy.

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