GM’s Car Sales Are Cruzing But Truck Inventory Is A Worry

General Motors (NYSE:GM) announced its U.S. sales for November. There wasn’t too much of a shock or surprise in the headline figure as the automaker’s sales grew 3.4% to 186,505 units. On a year-to-date basis, its sales are up 3.3%. We take a closer look at the report and investigate the good and the bad about this sales report. ^[1]

The Good

The good part about the monthly sales report was that GM’s car sales were up almost 19%, led by Chevrolet Cruze which was up 27%. The much maligned Volt was up 33% as well. Overall, combined sales of mini, small and compact cars were up 51%.

Moreover, Cadillac sales surged 30% to 14,517 units. Sales through November are still marginally down, but they have only accelerated after the introduction of the ATS and XTS so we are likely to see the momentum carry over into 2013 as well. GM has big plans to push the Cadillac and double its sales in the next three years. Luxury vehicles have wider margins so if the trend continues, the company’s profitability will certainly benefit.

See full analysis for General Motors

The Bad

Sales of light trucks were down 3.8%. Since they make up for more than 60% of its total sales, its impact was pretty much evident on the overall sales figures. The worrying news is that the automaker’s pick up truck inventory swelled to 139 days from 110 days in October. GM will unveil the Silverado 2014 early next year and a rising inventory of its existing line up could dent the launch of the redesigned model. To clear its existing stockpile, GM might need to offer abnormally high incentives which could then suddenly make the newer model appear unattractive due to its higher pricing. Silverado is GM’s best selling vehicle and accounts for about 15% of the company’s total sales. Moreover, heavier vehicles are generally more profitable so their contribution to the overall profits could be even higher.

GM cited higher incentives offered by its competitors as the reason for the decline in truck sales. While GM’s truck sales decreased, Ford Motors (NYSE:F) and Chrysler registered a growth of 2.8% and 9.6% respectively. A look at incentive spending offered by other automakers reveals that GM’s average incentive spending was indeed lower than Chrysler’s $4,748 for the Ram pickup but was still higher than Ford’s $3,294 per unit. ^[2] GM offered $3,988 per unit for Silverado and $4,226 for Sierra. Thus, there is still work left to be done by GM in this department.

We have a $26.90 price estimate for General Motors, which is about 5% more than the current price.

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1. GM November sales [↩]
2. GM’s Pickup Pileup Threatens 2013 Launches or Profits, December 5, 2012, bloomberg.com [↩]