Bring on a Sales Slump, We Can Take It!: GM

Steph Willems
by Steph Willems
em bring on a sales slump we can take it em gm

General Motors is searching for savings under every RenCen couch cushion as it ramps up a profit-boosting cost-cutting effort.

The automaker has already chopped plenty of what it sees as fat, and is so confident in its streamlining abilities that it now claims it could weather a major plunge in sales. Even, say, a 40-percent dropoff.

For a company that knows all about sales plunges — recent ones, too — this is pretty confident talk. It has to be, as GM wants you — yes, you! — to invest.

The comments are found in GM’s dry-sounding Strategic and Operational Overview, released yesterday. In it, the automaker describes the headway it’s made in its four-year cost-cutting plan, which aims to realize $5.5 billion in efficiencies by 2018.

As of the end of the first quarter of this year, GM has achieved $3.1 billion of its goal. The money saved, it claims, more than offset “incremental” investments in engineering and technology development. By 2018, the target should be well in the rear-view, the company says. The automaker also plans to sustain a 9-to-10 percent margin on its business by the early 2020s.

GM is clearly trying to get investors on board, predicting a profit of $6 a share for 2016. We’re all about maximizing shareholder value!, the document shouts. The rosy financials and predictions serve to strengthen its pitch to potential investors, many of whom might have cold feet due to that unpleasant thing that happened to GM not too long ago.

That last thing GM wants is to give the impression that there’s any chance of having to go, cap in hand, back to the federal government for a bailout. Don’t think that could ever happen, GM soothes, and by the way, we plan to return extra free cash to shareholders if we don’t need it.

Compelling, but there’s another issue to worry about. After a dizzying sales climb out of the depths of the recession, analysts predict an industry-wide sales slump. Will it be bad, and how long will it last? No one can say for sure, but the slowdown in new car sales is expected to last several years.

In late June, consulting firm AlixPartners predicted the trend would bottom out at 15.2 million units in the U.S. in 2019, compared to 17.45 million in 2015. Already, some sales predictions for this year have been dialed back.

GM claims it has the ability to weather a much greater slump. In the document, the automaker says it could remain profitable even if U.S. auto sales fell 40 percent, or to about 10.5 million new vehicle sales per year.

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3 of 18 comments
  • Fred Fred on Sep 23, 2016

    My problem with GM is their lack of commitment. Will they stay the cource of "cutting the fat" when sales improve?

    • Dash riprock Dash riprock on Sep 23, 2016

      Based on the GM of before 2007, the answer would have to be no. Based on what GM is doing now, it looks more optimistic. They have done a lot of financially prudent moves. As noted their profit margins have been on the upward trend. Much improved cost controls have been joined by a greater emphasis on retail sales. The ATP has been going up for quite a while. Incentive spend is marginally down. Inventory control is much better(CTS and ATS not being the shining example here). When they have launched new products, they have been pretty conservative with sales projections. With both the Encore and more recently the Colorado, restricted initial sales supply allowed for excess demand and thus minimal incentive spend. The old GM would have over estimated demand and have $4,000 incentives in a few months of launch. Overall, the company is doing very well. Heck, they are even starting to get some traction with the environmental crowd thanks to the Volt and the Bolt. GM's history still scares me enough to not buy shares at this point in time(mostly due to sales cycles and negative investment community view of GM), but I am tracking it.

  • Jeff S Jeff S on Sep 24, 2016

    GM needs to stay focused on containing costs but not at the expense of quality. GM and Ford should not go on a buying spree of buying European prestige brands and then having to unload them at a loss or close them. Stay focused on their core brands and continue to cut the fat. More automation of plants which in the long run will increase quality further and lower costs. Better to spend the funds on automating than on labor. It is much better to have your plants closer to the markets that you are selling in than to manufacture in places that are far away from your markets which cannot adjust to swings in demand as rapidly. It is much better to have more plants in North America (USA, Canada, and Mexico).

  • Alan The Prado shouldn't have the Landcruiser name attached. It isn't a Landcruiser as much as a Tacoma or 4 Runner or a FJ Cruiser. Toyota have used the Landcruiser name as a marketing exercise for years. In Australia the RAV4 even had Landcruiser attached years ago! The Toyota Landcruiser is the Landcruiser, not a tarted up Tacoma wagon.Here a GX Prado cost about $61k before on roads, this is about $41k USD. This is a 2.8 diesel 4x4 with all the off road tricky stuff, plus AC, power windows, etc. I'm wondering if Toyota will perform the Nissan Armada treatment on it and debase the Prado. The Patrol here is actually as capable and possibly more capable than the Landcruiser off road (according to some reviews). The Armada was 'muricanised and the off road ability was reduced a lot. Who ever heard of a 2 wheel drive Patrol.Does the US need the Prado? Why not. Another option to choose from built by Toyota that is overpriced and uses old tech.My sister had a Prado Grande, I didn't think much of it. It was narrow inside and not that comfortable. Her Grand Cherokee was more comfortable and now her Toureg is even more comfortable, but you can still feel the road in the seat of your pants and ears.
  • Jeffrey No tis vehicle doen't need to come to America. The market if flooded in this segment what we need are fun affordable vehicles.
  • Nrd515 I don't really see the point of annual inspections, especially when the car is under 3 years (warranty) old. Inspections should be safety related, ONLY, none of the nonsensical CA ARB rules that end up being something like, "Your air intake doesn't have an ARB sticker on it, so you have to remove it and buy one just like it that does have the ARB sticker on it!". If the car or whatever isn't puking smoke out of it, and it doesn't make your eyes water, like an old Chevy Bel-Air I was behind on Wed did, it's fine. I was stuck in traffic behind that old car, and wow, the gasoline smell was super potent. It was in nice shape, but man, it was choking me. I was amused by the 80 something old guy driving it, he even had a hat with a feather in it, THE sign of someone you don't want to be driving anywhere near you.
  • Lou_BC "15mpg EPA" The 2023 ZR2 Colorado is supposed to be 16 mpg
  • ToolGuy "The more aerodynamic, organic shape of the Mark VIII meant ride height was slightly lower than before at 53.6 inches, over 54.2” for the Mark VII."• I am not sure that ride height means what you think it means.Elaboration: There is some possible disagreement about what "ride height" refers to. Some say ground clearance, some say H point (without calling it that), some say something else. But none of those people would use a number of over 4 feet for a stock Mark anything.Then you go on to use it correctly ("A notable advancement in the Mark VIII’s suspension was programming to lower the ride height slightly at high speeds, which assisted fuel economy via improved aerodynamics.") so what do I know. Plus, I ended a sentence with a preposition. 🙂