Four Points Of Interest From GM’s November U.S. Sales Data

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When General Motors (NYSE:GM) announced results for the third quarter of fiscal 2015, it announced a pre-tax profit margin of 11.8%, a full 180 basis points higher than the 10% margin it was targeting for the full year. These excellent numbers are the result of strong sales of GM’s high margin pickups and SUVs, boosted by strong discipline in controlling incentives and operating costs. In the month of November, GM said its U.S. sales rose by 2% (year over year), again driven by strong sales of pickups and SUVs. [1] Retail sales grew by 4%, but the overall sales gain was offset by a planned reduction in the sales of cars to rental fleet operators. [2]

Importantly for the company, the sales gain was not achieved by an increase in discounts and incentives. In fact, GM’s average transaction price rose by $740 over the previous month, and around $580 compared to the same period in the last fiscal year. The increase in transaction price indicates that customers are purchasing better equipped models from the company. This bodes well for the company’s margins in the near term.

There are a few important trends to note though:

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1) Crossover SUVs continue to drive car sales: Across the industry, sales of pickup trucks and SUVs are surging. On a year-to-date basis, sales of pickups are up by 9.5%, sales of crossovers are up 17.6% and overall sales of SUVs are up by 10.4%. [3] Buyers are shifting away from sedans to buy SUVs, particularly car-based SUVs known as crossovers.

2) Sedans are struggling: What follows from this is that sedan sales are down. On a year-to-date basis, midsize car sales are down by 2.1%, luxury car sales are down 3.7%, while large car sales are down by over 50%. [4] GM had one exception to this trend: sales of the Chevrolet Volt were up by 48% in the month of November, thanks to a well reviewed new model. But electric cars make up such a small percentage of GM’s overall car portfolio that this barely affects their profits.

3) This Trend Is Good For GM: Generally speaking, sedans command lower prices than SUVs and are less profitable. For a company that has a lot of SUVs on its portfolio, a general trend towards increase SUV sales is good for profits. GM sells SUVs through four different brands: Chevrolet, Buick, GMC and Cadillac. Retail sales of SUVs made by Chevrolet rose by an impressive 26% in November, with SUV sales of all other brands also growing. The company’s pickups did well too: the Chevrolet Silverado gained 5% in sales on a year-over-year basis, despite the fact that competitor Ford’s best selling F-150 series of trucks are now back to full inventory levels. [2] The smaller Chevrolet Colorado and GMC Sierra also posted year over year gains in sales.

4) Fleet Sales Fell: GM’s fleet business has three primary customers:  commercial businesses, rental car companies and Government operations. The company has been trying to reduce sales to the rental companies as they tend to be the least profitable. In the month of November, the sales to this channel decreased by 16%, while sales to the other two channels rose slightly. Overall fleet sales were down by 9%.

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Notes:
  1. GM Sold 7.2 Million Vehicles in the First Nine Months of 2015, GM Media, December 2015 []
  2. Ref: 1 [] []
  3. WSJ Auto Sales, December 2015 []
  4. Ref: 2 []