GM sales up everywhere but here
Posted
Apr 16 2008, 02:22 PM
by
Anthony Mirhaydari
Rating:
In a rare release of good news, General Motors announced that its Latin America, Africa, and Middle East operating region set an all-time sales record for the first quarter: Over 323,000 vehicles sold, up nearly 53,000 units from the same period last year.
The 20% increase easily beats the industry’s 12% growth rate for the region and brings the company’s market share to 18%. Even if U.S. consumers aren’t crazy about Detroit’s small cars, and have ended their love affair with super-sized SUVs, the rest of the world is rollin’ American style.
Breaking down the results, all-time sales records were set in Argentina, Egypt, and North Africa. New quarterly records were posted in Brazil, Chile, Ecuador, Venezuela, the Middle East, and Israel. GM’s Chevrolet-branded small cars led the results -- generating nearly 40% of total sales.
Things are a bit different in the Middle East, where tastes are more in line with the United States circa 2003: According to Terry Johnsson, president of GM’s Middle East Operations, U.S.-produced full-sized SUVs remain "very popular in the region." Cheap gas and burgeoning oil wealth make the big vehicles an affordable status symbol in the deserts surrounding the Persian Gulf. [readmore]
Meanwhile, the average American continues to battle the so-called "quadruple whammy" of falling home prices, falling real wages, tighter credit, and rising food and fuel prices. Lehman Brothers analyst Brian Johnson quantifies the impact these factors are having on sales of full-sized trucks and SUVs in a research note published Monday. After peaking in 2003 and 2004, sales have "come under significantly increased pressure over the past few months." With gas prices flying towards the $3.40 per gallon mark, he’s looking for total sales to fall 13% this year to 2,510,000 units. Things are looking equally nasty in the used-car market: As everyone tries to unload their gas-guzzlers, resale values on SUVs and pickups are falling by double-digits.
In response to these trends, Brian expects "manufacturers to cut sharply their output of these highly profitable vehicles, putting pressure on their own earnings." He estimates that GM will need to cut production of full-sized trucks and SUVs by 11% or 143,000 units this year to better match demand. Inventories of these products remain persistently high for GM, with nearly a 120 day supply sitting on asphalt lots around the country.
Compensating for some of this are increased efforts to expand production overseas and buildup small-car capacity here in the United States with an eye towards the export market. Over just the past two days, General Motors announced it’s looking at increasing its assembly capacity in Indonesia and decided to build an advanced $200 million engine plant in Brazil. The latter features a closed-loop production process that doesn’t create industrial waste and will feature a large natural habitat preserve.
The mix shift from profitable trucks to tight-margined small cars will hurt GM: Brian is looking for a $4.7 billion loss in the North American market this year, compared to a $1.6 billion profit in the Latin America, Africa, and Middle East operating region. He thinks a small profit of 46 cents per share could be eked out in 2009. But even with international success, GM will remain on borrowed time unless it can recapture the hearts and minds of American drivers. The hell-bent rush into the electric-hybrid segment is a step in the right direction. And if all else fails, Clinton’s down for a bailout.
(Disclosure: I don't own any shares of the companies mentioned in this post.)
