How Will Slumping U.S. Sales Affect General Motors' Earnings?

Things might be better than they seem.

John Rosevear
John Rosevear
Apr 24, 2019 at 3:05PM
Industrials

General Motors (NYSE:GM) said its U.S. sales fell 7% in the first quarter of 2019, as continued good sales of GM's competitive crossover SUVs weren't enough to offset a significant year-over-year decline in sales of GM's car models -- and surprisingly weak results for GM's new pickup trucks.

The results have mixed implications for GM's first-quarter earnings. GM is due to report its first-quarter results before the U.S. markets open on Tuesday, April 30.

A 2019 GMC Sierra Denali, a full-size luxury pickup truck parked near a lake

GM's all-new pickups probably boosted its margins in the first quarter. Image source: General Motors.

How General Motors fared against rivals in the first quarter

Here's how GM's first-quarter sales results compare with those of its largest-selling rivals in the U.S. market.

Automaker Q1 2019 U.S. Sales Change (YOY)
General Motors 665,840 (7%)
Ford Motor Company 590,249 (1.6%)
Toyota 543,716 (5%)
Fiat Chrysler Automobiles 501,200 (3.1%)
Honda Motor Co. 369,787 2%
Nissan Motor 365,851 (12.1%)

Data sources: The automakers. YOY = year over year.

GM underperformed the broader U.S. market in the first quarter. Automotive News estimates that overall U.S. light-vehicle sales fell 3.2% in the first quarter of 2019.

High and low points from GM's first-quarter sales report

Before we get into the high and low points, here's an important bit of context: GM is in the midst of ramping up production of its all-new 2019 Chevrolet Silverado and GMC Sierra full-size pickups. Its first-quarter sales were a mix of brand-new models and prior-generation versions, with the latter generally sold with discounts. 

The high points:

  • Trucks and SUVs accounted for more than 80% of GM's U.S. sales in the first quarter, a high number that bodes well for GM's first-quarter profit margin. (Generally speaking, sedans tend to be less profitable than SUVs and trucks.)
  • GM said its average transaction prices were the highest for any first quarter in its history, thanks to the high percentage of trucks and SUVs sold.
  • Average transaction prices of those all-new 2019 full-size pickups were up $8,040 versus the prices of the prior models in the first quarter of 2018. 
  • Combined sales of "crew-cab" versions of the all-new Silverado and Sierra were up 20% year over year. That's important because crew cabs tend to be the most profitable kinds of pickups, and increasing production of crew-cab models has been a key priority for GM in rolling out its new trucks. GM said that more than 70% of the new trucks it produced in the first quarter were crew-cab models, up about 10% from a year ago. 
  • GM's crossovers continued to do well. The Chevrolet Trax and Equinox and GMC Acadia crossovers all set first-quarter sales records, and the new-last-year Cadillac XT4 was the best-selling vehicle in its segment.

The low points:

  • Sales of GM's car models were down a combined 21% year over year. Some former stalwarts did even worse: Sales of the compact Chevrolet Cruze fell 41.5%, the Cadillac XTS was down 23.8%, and the plug-in Chevrolet Volt fell 27.5%. GM has said that production of all three models will soon be discontinued.
  • While GM's all-new pickups appear to have done well in the first quarter, its overall full-size pickup sales were less impressive. Sales of the Silverado (all variants) fell 15.7% to 114,313, falling behind Fiat Chrysler Automobiles' Ram. (Ram sales rose 15% in the first quarter, to 120,026, as FCA boosted its incentives to take advantage while GM worked to ramp up production of its all-new trucks.)

Pricing was strong, thanks to new pickups -- and fewer cars

Fueled by strong pickup pricing and a smaller percentage of lower-priced car sales, GM's average transaction prices rose $938 from a year ago, to $35,881, according to J.D. Power PIN figures supplied by GM. GM said that was a first-quarter record.

GM's incentive spending as a percentage of average transaction price was 13% in the first quarter, somewhat high but down almost a full percentage point from a year ago. Its per-unit incentive spending was down $175 from the first quarter of 2018, according to J.D. Power. 

The upshot: Despite the sales decline, GM might have boosted its profit margin

How will these results translate into dollars when GM reports earnings next week? On one hand, fewer total sales suggest that revenue in GM's North America region will almost certainly be down from the $27.8 billion it reported in the first quarter of 2018. 

On the other hand, improvements in product "mix" -- GM sold more higher-profit trucks and SUVs relative to lower-profit cars -- and the pricing gains realized by its new pickups might have given GM North America an adjusted operating margin better than the 8% it reported a year ago. We'll find out when GM reports next Tuesday.