Should General Motors’ Decline In February Sales Be A Cause For Concern?
General Motors (NYSE:GM) recently announced its February sales numbers and, while the company gained a retail share of 0.4 percentage points in this month, there was a decline in total sales year on year due to a planned reduction in rental deliveries. The company reduced daily rental deliveries by about 16,500 units or 39% in February 2016. Total U.S. auto sales registered a 6.8% increase in February 2016 to 1.3 million vehicles. We believe General Motors’ retail sales growth is in line with the industry trend with a 7% increase although Ford seems to have performed better in this market with a 11% increase in retail sales for February 2016. The decline in total sales of General Motors for February is primarily due to a planned reduction in fleet sales and this should not be a cause of concern for the company’s investors.
Strategy To Grow Profitable Retail Share
General Motors’ management stated that its strategy is to grow profitable retail market share, while maintaining discipline with both inventory levels and incentive spending. Its reduction of rental deliveries is in line with this strategy. Its rental business is the company’s least profitable segment in the U.S. and reducing the size of this segment towards the more profitable retail segment should benefit the company in the long term. The company expects to bring down it fleet mix in 2016 to around 20% of total sales compared to historical range of around 22-24 %. Its Chevrolet Brand saw best February sales since 2007 with car sales up by 34%, cross overs up 5% and trucks up 3%. The company believes that its products are tailored to the generational shift in its buyers, as millennials (consumers aged below 34) now account for 20% of its total sales, up from 5% in 2010. According to our estimates, General Motors’ cars and trucks in the U.S. account for more than 20% of its valuation and we expect the company to sustain its market share in both these segments over our forecast period.
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General Motors is optimistic about the continued strength of the U.S. economy and expects auto sales to be strong for the foreseeable future, given low interest rates and stable gas prices. The decline in the company’s sales in February can be attributed to a large extent to its planned decrease in fleet sales and performance of its vehicles remains strong in the retail segment.
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