By on September 22, 2016

General Motors #AMERICA

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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18 Comments on “Bring on a Sales Slump, We Can Take It!: GM...”


  • avatar
    JohnTaurus_3.0_AX4N

    Sounds like their eyes are open and they’ve learned their lesson about pointless waste and not preparing for an inevitable slow down of this huge market growth we have seen.

    It might be 2017 or in years from now, but it will come. It always does, and this mountain that’s been built recently is on a deck of cards, with stuff like all these subprime loans and the warnings we have heard on those on these pages, that make total sense. I think economic conditions are ripe for some “correction” to put it mildly. Its more than auto loans, people are trying to live it up and their income, for a large part, is not where it was in the early 2000s, so instead of a Accord LX and keeping it 10+ years, they’re leasing a FWD Mercedes “I made it” billboard.

    It’ll be up to whoever wins this no-horse presidential race we have, you know, where neither candidate seems like a good idea. I have a lot of concern for what I feel we are in for. Probabaly a total §h¡t storm is what I’m thinking.

    If that happens, GM won’t be able to count on the profits from as many Denalis, Escalades and High Country’s like they can now. Try Low Country with a black grille (and toned down LEDs please).

    Like Ford showed, you pump that money into R & D, you come out with the best products you can (stuff like newer F-Series and Transit being developed during hard times for Ford, etc). That way you’re positioned better for when it picks back up.

    Hopefully it will this next go-round.

    • 0 avatar
      Lou_BC

      @JohnTaurus_3.0_AX4N – “no – horse” race. I like that metaphor. Unfortunately, I do not like what it means. I believe that regardless of who is in power, any sort of protectionism will make it all worse.

    • 0 avatar
      SCE to AUX

      @JohnTaurus: well said.

      As for the 15.2 million prediction, that seems mild. I don’t forsee another 10 million year, but maybe 13 million, which would be a 25% reduction.

    • 0 avatar
      Big Al from Oz

      John,
      We have yet to see the full impact of all the costs Ford has incurred in the development of the F-150. It was an expensive exercise.

      I’d say Ford still has billions outstanding just in development compared to GM.

      What will keep the auto industry alive is investing in machines and not people. This is the future.

      Manufacturing is going the way of the agri-industry. A century or two ago agriculture used 50% of a nation’s labour force. Now is measured in single digits, with massive increases in output. Manufacturing will be the same.

      Oddly enough the more prosperous nations control the agri-industry as we will with manufacturing in the future.

      This is why I laugh at those people who think the unions-Luddites will save them. I say take on the changes.

      A classic example of a so called body with the interest in its rank and file (UNIFOR) has it wrong. Look at Oshawa, the plant needs to close to end the uncertain atmosphere in that region. The Canadian taxpayer is contantly paying good money into a pit.

      I can’t see GM doing well if it is taking partly assembled vehicles to “finish off” their manufacture to another country. This to me seems to be an interim solution to the inevitable. Even the workers at Oshawa must be saying to themselves what kind of morons are making these decisions.

      The same can be said for Toyota with its manufacturing of Tacos in Mexico. This is a buffer. The US manufactured Tacos are done in a plant that is highly automated in comparison to the Mexican plant.

      When the vehicle industry is in decline where will Taco manufacture occur? Mexico or the US? The US is the answer. Those robots need to be paid for, the Mexican workers will lose their jobs and the robots continue to pay the bank.

      So, Ford, GM, I don’t think could handle a large decline in sales. Both have their problems to contend with.

      Mexico and China are the answer in maintaining vehicles for the US. I think Canada with its very high labour costs is a thorn in the side of the manufacturers.

      • 0 avatar
        scwmcan

        Vanda labour costs are still lower than the US, and top productivity and quality (at least for GM),as for shipping bodies, that is as yet an unsubstantiated rumour, we will not know what/and how is being produced until Sunday at the earliest, these details have not yet been revealed, the Candian plants are already highly automated (at least as much as the American plants) the thing that is hurting manufacturing in Ontario is not just labour costs, it is more the cost of electricity which costs manufactures like GM MORE than their labour costs due to the Green energy initiatives of our government.

  • avatar
    DearS

    I hope they keep things together. I have faith in the GM engineers, but they have a lot of opportunities for growth.

  • avatar
    Jeff S

    I would vote for a horse over any of the candidates. Where is Mr. Ed when when your country needs you? Wilbur

  • avatar
    SCE to AUX

    “We’re all about maximizing shareholder value!, the document shouts.”

    Why mock it? That’s what businesses are supposed to do.

    If you’re implying that GM should spread some love toward customer satisfaction and quality, I’d argue that those elements feed into shareholder value – not just their penny-pinching efforts.

  • avatar
    haroldingpatrick

    It kind of reminds me about the tale of the two farmhands – one could sleep when the wind blew and one who couldn’t. Hopefully they really are ready to weather the next storm.

    I’ll say this, the product is getting better. A couple of weekends ago while traveling, the nice young fellow at Enterprise DTW walked me out to a new Chevy Cruze and I groaned out loud. He politely offered a different car, but I declined and went on my way. I take that groan back, I was shocked at what a competent car it was, especially for a compact. I happen to drive a MK 7 Golf, so my reference standard is pretty high. It’s no MK 7 Golf, but it doesn’t need to be. Powertrain (including the auto stop) and general chassis composure are excellent. NVH is good. Fit and finish is good. Seats are not bad at all. If they can do this for a compact, they are heading in the right direction product wise.

    • 0 avatar
      tedward

      I completely agree. One of my irrational twitches is a tendency to assume crap output from gm. I’ve found myself walking back enough drunken or careless comments about their cars both here and in person to have embarrassed myself out of the bad habit. It took me a long time to see the cruze for instance as more than a better than the corolla or sentra product. It’s a lot better than that.

  • avatar
    APaGttH

    GM can weather a 40% slump in US sales because US sales isn’t just the only thing paying the bills. There is this country called China, and GM is really big there. Since VW decided that on the way to becoming the largest car maker in the world they would break emissions rules in just about every country on the planet, and China is starting to actually give a crap about that issue, the bigger issue is could GM weather a 40% decline in sales in the US AND China.

    • 0 avatar
      Big Al from Oz

      APaGttH,
      I agree China is pivotal in GMs case.

      As for VW, I think the Dieselgate situation has been over reached by many. I think VW is confronted with a situation as bad as the Toyota unintended acceleration problem. People are becoming a little more de-sensitised with the auto industry with the many stories from Takata to VW.

      Just look at VW’s sales figures in the US. Ford has incurred a greater decline of over 6% for the year and VW was around a 4% decline.

      I think TTAC’s beat up of VW was a little over the top and was un-representive of the view of the greater community.

      • 0 avatar
        dash riprock

        VW 2016 sales are down just shy of 13% ytd. To keep sales going, VW has increased incentive spending by 31%.

        Further, guessing that TDI’s were at the top of the profit margins for VW among their vehicles.

        So, not a healthy picture for VW in the USA. Not cataclysmic, but compared to previous years the financials must look grim.

  • avatar
    shaker

    Maybe GM can sneak the Chinese-made Envision under people’s noses, but if they start importing more of the like (especially if they wear Chevrolet badges), there will be a backlash that could kill their sales for years to come. Mark my words, GM – don’t let short-term shareholder desires lead you to a fatal mistake – there WON’T be a bailout for a Chinese importer.

  • avatar
    Fred

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

    • 0 avatar
      dash riprock

      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.

  • avatar
    Jeff S

    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).

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