Earnings Review: GM Posts Strong Profits On Transaction Price Growth Despite Sluggish Unit Sales Growth
General Motors (NYSE:GM) reported its earnings for the third quarter of fiscal year 2016 on Tuesday, October 25th. The Detroit based auto maker reported earnings per share of $ 1.76, nearly double the prior year figure. This growth came on the back of a 10.2% increase in revenue and a 36% reduction in operating expenses. The company’s unit sales only grew by 0.6% for the quarter, reaching 2.39 million units compared to last year’s 2.38 million units. Excluding China, where the company grew its unit sales by 7.4% year over year, the company’s unit sales actually declined by close to 3%. Still, GM managed to grow its average unit pricing by close to 12% for the quarter, with North America, South America and Asia/Pacific/Middle East/Africa all growing at healthy double digit rates.
In the July-September period, GM saw its sales in North America decline by 1.3% year over year. The company saw its unit sales in the U.S. decline by 2.6% in the quarter, with crossover sales declining by 10.7%. In the calendar year 2016 so far, the company has seen sales of all its brands except Buick decline. Despite the decline in sales and loss of market share, GM has been able to raise its average transaction price from $ 29.8K in 2015 to around $ 33.8K in 2016.
On the other hand, the company saw its unit sales in China increase by over 7% in the quarter. This was helped by the reduction of the sales tax on small engine vehicles to 5% and heavy discounts offered by auto makers. Consequently, even though GM sold more vehicles in the quarter, it saw its equity income from China decline by 1%, implying a reduction in equity income per unit sold of 7.7%.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for General Motors
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