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GM Says December Results Point to More Improvement in 2011

The news may fuel optimism, but just 16 months removed from bankruptcy GM still faces a number of risks in 2011.

Coming off a robust sales month in December, General Motors Co. expects U.S. industry demand to jump as high as 13.5 million units this year after auto makers delivered some 11.5 million in 2010.

“Our December results were solid, and we feel good about the year that has passed,” says Don Johnson, head of U.S. sales at GM. “Our outlook is quite optimistic.”

GM pegs industry light-vehicle deliveries in 2011 between 12.5 million and 13 million units, after a December that saw auto makers sell at a year’s-best rate of 13 million units overall on a seasonally adjusted basis.

According to Ward’s data, GM sold 224,147 cars and trucks in December, up 12.5% vs. like-2009 and accounting for one fewer sales day this year. Last December, the auto maker sold 206,708 units and it closed out 2010 with 2.2 million deliveries, up 7.2% compared with 2009.

GM also continues to command higher prices for its vehicles, with average transaction prices up $1,300 per vehicle through December vs. a gain of $300 for the industry, Johnson says citing data from consultant J.D. Power and Associates.

Incentives continue to fall, as well, down $650 per vehicle to an average of $3,200 vs. a drop of $85 to $2,850 per vehicle for the industry.

The auto maker says the decline in its incentive spending, which remains among the highest in the industry, reflects its new discipline to building to demand instead of flooding the market with heavily discounted product.

Johnson says 2010 also proved the new GM’s ability to build groundbreaking products such as the Chevrolet Volt extended-range electric vehicle, maintain a sharper marketing focus after bankruptcy trimmed four of its eight brands, sustain sales volumes despite a smaller dealer network and operate profitably in a still-weak sales environment.

Sales at GM’s volume brand, Chevrolet, concluded the year up 16.4%, while Buick finished as the fastest-growing brand in the U.S. with sales increasing 69%. Cadillac rallied last year to become one of the industry’s fastest-growing luxury brands, as deliveries swelled 9.5%. GMC quietly posted a 31.6% uptick in sales last year.

Calendar-year sales for GM’s four brands were up 21% compared with 2009, and Chevrolet, Cadillac, Buick and GMC accounted for 118,435 more deliveries in 2010 than the auto maker could muster with eight divisions the previous year.

GM expects a market-share gain in 2010 after trailing its 2009 performance for most of the year.

“The consistency of these results we’ve achieved really demonstrates the focus of the new General Motors, where we compete aggressively for every sale every day,” Johnson says during a conference call with journalists and Wall Street analysts to discuss December’s results.

The news may fuel optimism, but just 16 months removed from bankruptcy GM still faces a number of risks in 2011.

The job market remains weak with unemployment at 9.8%, and housing continues to falter after its meltdown two years ago. Fuel prices are ticking up again, too.

Like its competitors, GM’s sales results in 2010 also reflect stronger demand from fleet, commercial and government customers, rather than the traditionally more profitable retail segment.

Availability of credit to consumers also remains an issue.

“We expect the depressed housing market and, to some degree, the slow employment growth to be somewhat of a drag on vehicle-sales growth in 2011,” Johnson admits. “However, we do expect that these risks will diminish as we progress through the year.

“As a result, we believe the U.S. economy will be stronger and grow more in 2011 than 2010.”

Although pump prices climbed to an average of $3.07 per gallon today, compared with a $2.66 a year ago, and many analysts point to $4 later this year, Johnson says GM stands prepared.

In 2008, pump prices spiked above $4 per gallon and consumers abruptly shifted to smaller cars, leaving GM and its truck-heavy lineup in a lurch. The shift helped throw the auto maker’s financial situation upside down.

“Our portfolio is very well positioned to meet whatever happens with fuel prices,” Johnson offers. “We’re confident we’ll fare as well, or better, than anyone in the market” if another shift occurs.

GM’s revamped lineup of products in 2011 include fuel-sippers such as the Chevy Cruze and Sonic small cars, the electrified Volt and the sporty but efficient Regal and Verano from Buick.

Johnson says the auto maker’s new in-house lender, GM Financial, will help it tap the subprime and leasing market more freely.

GM bought AmeriCredit Corp. last year for $3.5 billion to make up for tighter lending practices at its former in-house lender GMAC, now named Ally Financial. Leasing at GM comprised 8% of its business at the close of December, down from the typical 20% or more range a few years ago.

“Clearly, we’re getting more into the subprime business with GM Financial. GM Financial also is beginning to do a little bit of leasing,” Johnson says.

“But also, we’re having a lot of success with Ally. They’re writing a lot more of our business than they did a year ago, and they’re approving more applications.

“Directionally, the financial institutions are, first of all, seeing better credit scores from consumers, but they’re also freeing up their policies just enough that I think they are really going to help us grow the business next year.”

Johnson expects retail growth to continue to trail fleet increases in 2011, but businesses will start to take a bigger piece of the market from rental companies and the government as the economy expands.

“Businesses are coming back faster than consumers,” he says.

GM finishes the year with an inventory of 511,000 cars and trucks. Although the auto maker remains light on a number of popular products, such as the Chevy Equinox cross/utility vehicle and its newly launched heavy-duty pickups, Johnson calls the inventory level “healthy” as 2011 gets under way.

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TAGS: Vehicles
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