General Motors Death Watch 145: The Truth About GM's August Sales

Robert Farago
by Robert Farago

Imagine GM CEO Rick Wagoner in his RenCen bunker in the middle of August. Reports from the front indicate his North American division faces a third straight month of lowered sales. As the architect of a turnaround plan with no publicly defined goals (including a return to profitability), Wagoner’s given himself plenty of wiggle room. But a bad August– in the face of production cutbacks and a rapidly declining market– would finally trigger Wall Street’s alarm clock. So what does he do? He cheats.

In August, GM’s year-on-year sales rose by 6.1 percent. In the same period, Toyota’s sales declined by 2.8 percent. On the face of it, it’s a stunning result. The media and Wall Street’s reaction was both swift and positive. “Investors given hope after GM bucks downtrend” MSNBC proclaimed. On Tuesday, GM shares rose by $1.18 (3.8 percent). Clearly, Wagoner's wily ways worked: he dodged the bullet.

Despite the obvious anomaly, industry experts weren’t all that interested in examining the figures for a suitable explanation. IRN Inc. auto analyst Erich Merkle spoke for many when he told Bloomberg “It was a quirky month.” Quirky or not, all GM's upward movement came from light truck sales, which rose by 16.5 percent. (Passenger cars sales tanked by a Toyota-beating 7.8 percent.) So the press credited the jump to a sudden increase in consumer demand for GM's pickups and called it good. Very good.

And yet, the clues to the real state of affairs were there for all to see, right in GM’s press release. “When combining retail sales with our growing commercial business, our sales were up when compared with last August,” Marketing Maven Mark LaNeve crowed. "With the double-digit decline in daily rental sales so far this year, and an overall market that remains challenging and competitive, we continue to stabilize our retail share and pricing in the market.”

Growing commercial business? Is this the same GM that said it loud and said it proud: we hereby swear-off fleet sales to protect retail residuals and get GM out of the “pile ‘em high and sell ‘em cheap” mentality? The numbers tell the tale. In August, GM’s total fleet sales rose by 21 percent. And as for LaNeve’s professed “double digit decline in daily rental sales,” note the “so far this year” qualifier. GM’s sales to rental companies increased by 24 percent during August.

In other words, Wagoner’s mob reneged on their promise to their retail customers. They sacrificed their retail customer's vehicular equity to goose the company's August numbers. They cheated. Sometime in mid-August, someone placed a call to fleet buyers and said OK, we’re done starving you of cheap cars. How many would you like ‘cause we got LOTS.

It’s hard to be specific. In a radical and deeply suspicious break with previous policy, GM didn’t separate out fleet and retail sales numbers for August. But the fact that sales of all the usual rental car suspects (Pontiac G6, Chevrolet Impala, Chevrolet Malibu, etc.) matched or exceeded last year’s totals in a declining market is pretty damn damning. If you think about it, that 7.8 percent drop in GM's car sales would have been catastrophic without bulk sales.

As for the trucks, again, we have no idea how many went to fleets. But you can bet it was a bunch. Whenever there’s a statistical anomaly–such as the reversal of GM’s sales losses and Toyota’s sales gains– common sense says something’s changed. On the retail truck side, there’s only one factor that could explain a Silverado or Sierra surge: increased incentives. From July 31 onwards, GM offered from $2k to $4k incentives or zero percent financing on their pickups– even as Toyota quietly dropped national incentives on their Tundra.

Sacrificing profits for sales might increase sales, but it does nothing for profits. So even if GM's 30 percent increase in pickup truck sales isn’t fleet related, the surge isn’t all that it’s cracked-up to be. Truth be told, The General’s recent pickup truck production cutbacks sent a clear signal to alert observers that the automaker's August sales increase must be a temporary bump on a rocky road to oblivion. Short term, GM’s headed straight for lower pickup truck sales AND reduced profit.

Since the numbers received so much attention, let’s finish with the numbers.

Frank Williams says GM’s August increase is based on percentage change per sales day. If you just compare the total numbers from Aug ‘07 to Aug ’06, there's only a 4.9 percent sales increase. Since both months had the same number of selling days (27), there’s only one reason to change the formula: to inflate the percentages. But no matter how they slice it, GM’s still down 7.5 percent overall year to date. While a few models may be showing some increases, the overall trend is decidedly downwards.

Mr. Wagoner can hide from the truth, but there’s nowhere left to run.

Robert Farago
Robert Farago

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  • Pch101 Pch101 on Sep 11, 2007
    MOST of the Tundra incentives were dropped in August yet Toyota STILL managed to sell almost 20K Tundras. Edmunds reports that Tundra incentives averaged $4,625 during July; the August TCI report isn't out yet, to my knowledge, but Tundra incentives during August were still north of $3k per vehicle. Meanwhile, sales fell by 18.2% from July to August, from approximately 23,000 units to a bit less than 19,000 units. The percentage decline in sales is eerily similar to the percentage decline in the incentives being offered. On the whole, it's pretty clear that incentives are moving the large pickup market, and that no one is faring particularly well in it. That's what buyer loyalty and costly fuel will do to you. GM’s data is for “deliveries” and if that’s TO, rather than BY, dealers, increases in dealer inventory could help explain apparent good news. We really need detailed dealer inventory numbers to really understand what’s happening. The thing is that nobody really reports dealer sales. The more common methodology for accounting for end-user purchases is new-vehicle registrations data. To be fair, it's reasonable for GM to report its "deliveries", for GM's customers are its dealers, not the final consumer. (The profits generated from sales to the buying public go into the pockets of the dealerships. GM is a wholesaler, not a retailer.) However, you are correct to point out that GM engages in a practice that is known as "channel stuffing", booking inventories dumped into dealerships as units sold and as revenue generated, even though the dealers can't necessarily sell this unwanted, undesirable product to end users. Since manufacturers generally cover the holding costs via the holdback and often don't get paid their wholesale price until after the dealer sells the car to the final customer, this delayed payment makes it easier for dealers to absorb cars that can't be moved without eventually offering deep discounts or moving them into fleet duty. As you observed, the sales numbers are misleading if we look at them in a vacuum. Without putting the sales numbers into context with comparable average inventories and average incentives figures, they don't tell us very much. If a car requires a few grand in giveaway money to move it off the lot, then that's a clear indication that it is not faring all that well, no matter what the PR department might tell you. No manufacturer offers that sort of Cinderella financing and free giveaways unless they have no choice. With few exceptions, large incentives are invariably symptomatic of struggling sales; they are not a deliberate or clever sales strategy, no matter who may use them.
  • Jaje Jaje on Sep 11, 2007

    +1 on buying a lightly optioned standard truck. They are the best deal and maintain their value much better than the extended / crew cab models. I recently took over a lease on a 2500HD standard cab with 8' bed. I swapped in an older cd / usb player and have a nice stereo. I also got a leased truck with no down payment, the employee pricing advantage (as the original lessee was an employee), an incentive by the lessee to take over their lease, and the security deposit at the end. I've got 2 years left and it allows me to evaluate the truck and decide whether I want to buy it at the end of the lease (or more importantly off warranty). So I suggest buying or taking over lease payments of a slightly used standard pickups if you truly need a truck. It'll save you the most down the line.

  • Tane94 Workhorse probably will be added to the heap of failed EV companies.
  • Freddie Instead of taking the day off, how about an article on the connection between Black Americans and the auto industry and car culture? Having done zero research, two topics pop into my head: Chrysler designer/executive Ralph Gilles, and the famous (infamous?) "Green Book".
  • Tane94 Either Elio Motors or Aptera Motors.
  • Billccm I think we will see history repeat itself. The French acquired AMC in the 1980s, discovered they couldn't make easy money, sold AMC off to Chrysler. Jeep is all that remained. This time the French acquired FCA, and they are discovering no easy profits. Assume an Asian manufacturer will acquire what remains of Chrysler, but this time Jeep and RAM are the only survivors.
  • William I feel very sorry for those who attempt to use an attack on a product as a way to deprecate an individual whose politics they disagree with. They delude themselves and mislead others.