Why GM Might Post Lower Profits Again This Year

-8.05%
Downside
45.22
Market
41.57
Trefis
GM: General Motors logo
GM
General Motors

General Motors (NYSE:GM) reported a year of record profitability in 2015 as its pick-up trucks Chevrolet Silverado and GMC Sierra together outsold Ford’s F-series pick-up trucks for the first time ever. As GM’s Detroit-based competitor shut down production at two factories in order to retool them for the production of a new version of those trucks with an aluminum body instead of a steel body, GM’s market share in pick-up trucks increased. This propelled GM to record profitability. In 2016, the company’s market share in this segment declined as Ford’s production returned to capacity and as a result profitability declined on a year-over-year comparison. To be sure, GM’s profitability was extremely high by historical levels and only unfavorable comparisons with an extremely strong year could make it look bad.

In 2017, that trend looks set to continue as both Ford’s F-series trucks and Chrysler’s Dodge Ram are taking market share away from Chevrolet Silverado. For the year 2016, Silverado’s sales declined by 4.3% compared to 2015 sales. This resulted in a decline in market share of 2.3 percentage points. In the first three months of 2017, Silverado’s sales have declined by 0.4%, while overall pick-up truck sales have increased by 5.2%. Ford’s F-series sales have grown by 10.3% over that period resulting in a market share increase of 150 basis points, while Ram’s sales have kept pace with overall market share resulting in its market share staying constant.

ram vs silverado

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One reason why the Ram seems to be outselling Silverado is that its models are slightly older and as a result the company is offering high incentives on their sales. A newer version of the Ram 1500 is likely to show up early next year and newer models tend to sell well and fetch higher prices. This makes it all the more important for GM to figure out a strategy to retain market share in this segment.

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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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