The Truth About GM's 2010 Production Goals

Edward Niedermeyer
by Edward Niedermeyer

It’s important to keep GM’s claims about market share and production volume in their proper context. Over the very long term, the graph above reveals the dynamic that should come first in GM’s calculations: a long-term decline in consumer trust and market share. This decline shows no signs of stopping, meaning GM’s 2009 market share of just under 20 percent is hardly a given going forward into 2010.

The other important dynamic is market size, since GM has made it clear that it sees an opportunity to sell 2.8m cars next year. As we can see above, the overall market is in precipitous decline (2009 is . GM’s assumption that the US car market will stabilize at 11.5m units is actually fairly conservative according to many analysts, some of whom see sales going into the 13m range. Still, though it seems that the worst macroeconomic conditions may be behind us, there are no promises that an economic recovery will lift the auto market the way it has in the past. As Detroit booster emeritus Keith Crain [sub] notes in a tone of petulant desperation:

There used to be a theory that car sales and population were related. Someone said you could look at the U.S. population and figure that a fixed percentage would be buying new vehicles in any year. That imperfect formula worked pretty well for a couple of decades, until our latest financial crisis… So let’s not worry about the economy. Let’s just hope for an automotive recovery soon.

In short, we can work with a few market scenarios to find a possible production goal: 10m (no growth) 11m (small growth) 12m (optimistic growth, even by GM’s standards). We can also look at a few market share projections, and just as it’s nearly impossible to predict a decrease in annual market size (as it’s at a historical bottom), it’s practically impossible to predict an increase in GM’s market share (considering it’s in a steady, 30-year decline). Therefore, let’s call 19 percent the high-end estimate, 18 percent a mid-range scenario and 17 percent as a downside scenario.

Market Share 12m 11m 10m

19 Percent 2.28m 2.09m 1.9m

18 Percent 2.16m 1.98m 1.8m

17 Percent 2.04m 1.87m 1.7m

The “best case scenario” of 19 percent market share in a 12m market is represented in the top left corner, and it would result in GM selling 2.28m cars. GM uses 2.3m (20 percent of an 11.5m market) to refute analyst concerns at its Fastlane blog. The difference between that number and the 2.8m production plan is explained thusly:

Carry-over share for Canada, Mexico and exports from the U.S. is worth about half a million more. With carry-over share based on the lower end estimates for the industry next year, the numbers would indicate a GMNA production run of about 2.7 or 2.8 million for CY 2010 – a more than reasonable estimate, remembering we’re at record-low inventory as well.

In short, GM calculates a half-million car cushion for itself for demand in Mexico and Canada. And figuring out how accurate that assumption isn’t easy. Based on the latest sales data we have (which are admittedly limited… ping us at the contact form if you have better numbers) GM Canada sells about 276,000 vehicles per year while Mexico [sub] is looking like a 120,000 unit market for GM. In short, there looks to be a good 100k worth of padding in the padding. Keep in mind as well, that GM’s sales and market share in both of those markets is trending downward as well.

Then there’s the unavoidable issue of GM’s dying brands, which could account for as much as 3 percent market share loss regardless of the economic conditions. Not to mention the (as yet) incalculable effects of GM’s culled dealers. Though the dealer bloat had to go, it remains to be seen how the slim-down will impact market share over the longer term. And then there’s the issue of segment-based market share loss, and one look at Hyundai’s hot sellers and market share growth show that GM fighting entropy in its mass-market offerings. Buick LaCrosse, Caddy CTS and Chevy Camaros might make good poster children, but they’re butter for a bread that’s dried-up and moldy. With GM’s marketing and PR locked onto brand-consideration campaigns featuring (relatively) niche vehicles, one wonders if the volume game will be lost by the time GM brings replacements for Aveo, Cobalt, Impala, and yes, Malibu (look at the numbers) to the market.The Equinox seems to be the only exception to this picture, and can’t shoulder the battle alone.

Optimism is usually a state of vulnerability, but there’s taking a chance and there’s diving off the deep end. GM insists that its bankruptcy designed it to break even at a worst-case scenario of 1.85m sales per year, so adding an extra million units of production is the kind of decision that should not be taken lightly. Especially because if GM ever does make a real commitment to that goal, its going to have to burn cash to reach it.

If GM didn’t have a long history of accidentally inflating production and going wild with incentives, we might look past the 100k unit padding in the Canada/Mexico numbers, the blind optimism about market share, and even the semi-retraction of 2.8m units as a goal. Ok, maybe not. In any case, if GM wasn’t aware of its own susceptibility to unrealistic optimism, it’s now fully aware of the public’s awareness thereof.

Edward Niedermeyer
Edward Niedermeyer

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  • Christy Garwood Christy Garwood on Oct 13, 2009

    I am not going to even try to predict economic conditions or GM's market share next year. However, Fritz has publicly stated several times since July (and it is publicly available in Viability Plan 4 as part of the BK records) that my employer's breakeven point is 18% market share in a 10 million count vehicle market. Another publicly available figure is GM sales in the US for September, 156,673. And it was indicated on this site that this was a pitiful sales month for GM in 2009. What if GM sold a minimum of 156,673 cars, trucks and crossovers every month in 2010 regardless of total market or total market share? They would sell 1,880,076 vehicles. IMO, the news will be compelling when GM's sales drop below 150,000 units in a month.

  • Power6 Power6 on Oct 14, 2009
    On the flip side, cars do last longer than they used to, so that trend somewhat decreases the demand for cars. This has been said for years, and was certainly true at one time. But can we take this for granted any more? I think for the last 10 years or so, there has been little focus on increasing overall reliability and durability of automobiles. Seems to me the focus has shifted to cheaper manufacturing, and the elimination of over-engineering where possible. If any car can last 150k miles, and I do personally beleive so, then what incentive is there for a manufacturer to make a car any more durable? The customer can't tell the difference between 150k and 250k mile engineering when they buy the car, and for the most part they probably don't care. Furthermore those that do care buy on reputation (i.e. Toyota) since there is no other easy way to tell. I suspect that the main reasons people purchase new cars has little to do with the current automobile being completely used up.
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  • The Oracle Been out on the boat on Lake James (NC) and cooking up some hella good food here with friends at the lake place.