Earnings Preview: GM Had An Extremely Strong FY2016
General Motors (NYSE:GM) is set to report earnings for the fourth quarter and full year of 2016 on Tuesday, February 7th. The U.S. auto maker had another strong year in which it gained market share in the U.S. auto market, posted record deliveries in China and returned to profitability in Europe. We will go over the company’s regional performance in more detail later in this article but it is first important to situate GM’s performance against the state of the auto market at the end of 2016.
As it stands, the trends in the auto market in 2016 were the same as those in 2015: most of the profits came from the U.S. auto market, while China provided most of the unit sales growth and companies began to realize improved profits in Europe. However, there were also things happening behind the scenes that are setting the stage for significant changes to the market. These include, but are not limited to: 1) the impact of ride sharing services on the attitude of consumers to car ownership; 2) the increasing adoption of electric vehicles amid dropping battery prices; 3) increasing investment in autonomous driving software; and, 4) potential changes to the manufacturing processes adopted by incumbent car companies. General Motors’ investments in Cruise Automation, the Maven ride sharing program in Michigan and the ride sharing company Lyft show that it is extremely interested in all these trends and taking steps to configure itself accordingly. Additionally, the Cadillac Book program, launched in New York towards the end of the year, hints at the company’s efforts to define new business models between purchasing and on-demand rides. Termed a “new luxury vehicle subscription service, Book By Cadillac will offer drivers access to shared Cadillacs for a flat fee.
GM Gains Market Share In The U.S.
GM ended the year as the highest selling car manufacturer in the U.S., with a market share of 17.3%. Of the company’s four brands, only one saw its market share increase in 2016. The company’s Buick brand saw its sales increase to 229,631 at a market share of 2.9%, while Chevrolet, GMC and Cadillac saw their market shares decline to 12%, 3.1% and 1% respectively. Combined sales of GM’s pick-up trucks Chevrolet Silverado and GMC Sierra fell short of Ford’s F-150 pick-up truck sales in 2016, as Ford’s trucks returned to full production levels at factories and full inventory levels at dealerships. In 2015, rising sales of these trucks had propelled the company to record profitability. In 2016, these sales levels weren’t as high but they were still high by historical standards, which should translate into strong profits for the company.
GM Posts Record Deliveries In China
GM saw its deliveries in China increase by 7.1% over 2015 sales in this fiscal year. This set a new record for the company. The company plans to launch 60 new or refreshed models in China over the 2016-2020 period. Of these, 13 were introduced last year, 18 are planned in 2017 and 17 in 2018. About 40% of these models are expected to be SUVs and compacts (also called MPVs). In contrast to GM’s brand performance in the U.S., all GM brands saw their sales increase in China. Cadillac deliveries grew by 46%, Buick’s by 19%, Chevrolet grew sales to 525,000+ units and Baojun, GM’s low cost SUV brand in China, saw its sales grow by 49% to a record 688,000+ deliveries. GM’s SUV sales grew by 45% in 2016, but there is still a lot of room for its model mix in the region to grow. This is why the company is focusing on shifting its overall mix in the direction of MPVs and SUVs going forward.
Have more questions about auto companies? Click on the links below:
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- How Honda’s Automotive Business Is Faring In Japan
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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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