GM Sales Toward Destruction?
http://biz.yahoo.com/fool/050831/112550238308.html?.v=1

And that brings us to the topic of today's column. A report just out from Harbour Consulting, a management consulting firm, shows that over the first six months of 2005, General Motors posted the worst profit numbers of any of the automaking "Big Six." On average, GM lost $1,227 for every vehicle it has sold this year -- nearly 10 times the $139 per-car loss incurred by U.S. rival Ford (NYSE: F - News). In contrast, American-German hybrid DaimlerChrysler (NYSE: DCX - News) earned $186 per vehicle sold.

Meanwhile, all three of the largest Japanese automakers earned multiple times more profits than even the only profitable "American" car company. Nissan (Nasdaq: NSANY - News) fared the best among the Japanese automakers, earning $1,826 per vehicle sold. Toyota (NYSE: TM - News), sacrificing profits in its quest for enough sales volume to overtake GM as the world sales leader, settled for second place in profitability, with $1,488 per auto sold. And while Honda (NYSE: HMC - News) brought up the rear among the island nation's car manufacturers, its $1,203-per-vehicle profits still left its American and German rivals in the dust.

So in their desperate scramble to retain market share, GM and its domestic brethren have succeeded in boosting sales -- but at the cost of abandoning the profit-making motive that drives successful capitalistic ventures. The Japanese, meanwhile, are holding the line on prices, and they're earning profits as a result. Patriotic jingoism aside, it seems clear to this Fool which companies make for the smarter bets.

 

There are long term beneifts to short term losses.... and the long term benefits probably helped LOWER the short term losses they would have incurred by temporarily shuttering factories and sitting on overstocked lots.

It's making the best of the situation while building a solid foundation for the future.

 

It's just so much easier to grow a company than it is to right size a company when the market changes ...and you've made some really bad decisions in the past.

I'm still betting on and rooting for GM!!

I'm also hoping the UAW and CAW "get it" before it's too late.

 

I think the fact GM sales were up so dramatically proves that GM is/can be competative when they have their pricing right. And if that continues hopefully they'll have won a brand new crop of loyal customers.

 

Although I've never really stopped being a GM supporter, I was driving a Hyundai for 4 years. GM really did win me back in a sense. I'm now driving a Pontiac Pursuit for very little more than I was spending on a Hyundai Accent. The Accent was a great little car, but there is no comparison, I feel like I'm driving a Bentley now, the Pursuit is so much better. The service I got at my local dealer was, and continues to be top notch. Heck, they even invited me to an open house they are having in a couple of weeks, where they are going to give me a tour of the service area, talk about the road side assistance program, feed me, and give away prizes. Way to go GM

 

Despite all of the hazing from magazines, GM really does make an effort to produce a quality vehicle. In the other thread, it talks about all of the innovations and such that GM has made and the list is quite long. Hopefully with the same aggressive sales campaign that they have already been using, they will once again become a very profitable company again.

 

That's true, but when their costs are $1,500 more per car than Nissan's, selling similar cars for similar prices isn't going to cut it for GM.

GM - "We lose $1,500 on every car we sell - but we make it up in volume!"

 

I can't believe they are even considering holding over employee discount programs to the next model year.

Suicide. That will prove all the detractors of the program right. They have a clean cut off line between model years, all they have to do is take off the employee discount commericals and put on the value pricing commercials in just as heavy rotation. But they are about to make an already awkwards process impossible. With leadership like this they deserve to fail.

 

Not that I don't thoroughly respect Yahoo!'s business expertise, but I beleive they are misunderstanding the numbers. GM did not lose $1,500 a car because of their promotions. They lost $1,500 a car due to their fixed cost, you know, health insurance, retirement benefits, etc. Had GM sold fewer cars, their revenue would have been even smaller, thus creating more losses per car.

The problem thus is not GM selling itself out of business, but rather the fact that GM simply cannot self enough cars to meet its costs. And to be even more clear, this has relatively little to do with the quality and appeal of the cars they are making. The one cogent point in the Yahoo! article was the off-hand mention of the "Big 6." That's six, up from three. There are too many companies in the market for GM to have the 30% share they need in order to sustain their operations as they currently exist.

 

Lest we forget....

GM does not make money when the car is sold to the customer (except thru GMAC if it's financed thru GMAC)

GM makes money when the car (or truck) is invoiced to the dealer (and his/her financing institution)

The "Employee Pricing" incentive was designed to:

>clear the lots of 2005 models...preparing for repriced 2006s
>get dealers to order more new cars......thereby keeping plants open and running....and in turn, keeping suppliers working.

Dealers aren't going to order new cars when their lots are full.

 

I didn't say I hope they fail, assuming that was a reference to me. But I just read in the WSJ some 06' vehicles will be included in employee pricing. I don't see how that can be justified.

Perhaps I could have misread as there are 06' vehicles on the street now and they will simply be added to the list while keeping the september whatever end date. At first I was pretty optimistic about this promotion, especially since with GM doing it every other domestic automaker pretty much has to do it as well, but its starting to reak of desperation.

 

the 2006 models included in employee pricing are the full sized sport utes.

I don't think they would have been included .......except that gas prices are going crazy............................................. ....................................


so.........I guess I'll ask: What would you do in that position? Build 'em or close the plant?

 

Looking at the new models that GM has released, it is clear that they are making the steps in the right direction. I like to check out all the new cars every November in Boston, and last year showed some promise. Example: Each year I would get in the Cadillac Eldorado and wonder why it cost so much. The materials used and the quality of construction were in want (though I did like the body style.) Then I got in a new STS and it was a marked improvement.

I recently toured the Bowling Green Assembly plant, and I noticed that GM has implemented a lot of the Toyota Production System (aka Lean, aka Just-In-Time, aka Kaizen), and I was really impressed they were able to do that in a Union environment. At the same time, it is assembly-only, meaning all the parts have to be shipped in from somewhere else, adding costs.

That said, they still have quite the workload in front of them to match the profitability of others. Much of that has to do with UAW contracts, but they would be in a much better position now if they had made better decisions in the past. Oldsmobile should have been put to pasture in 1992. Buick should have gone with them. Model overlap is still a problem.

Brand identity is getting sorted out. Cadillac has nailed it, Chevrolet is what it should be. Pontiac is cleaning up. Buick needs some work. Saturn?

At the same time, they are doing Saab a great disservice by "badge-engineering" their vehicles. It is as though GM is unfamiliar with the mindset of a Saab owner.

I have posted in the past my displeasure with GM, and overall, that still stands. Until they prove that they have improved, I'll sit on the sidelines. Hopefully the current promotions will have positive effects with repeat buyers in 3-5 years. This can only happen if the current product is quality. I wish them good luck.

 

Even with gas prices skyrocketing I don't think that its that black and white. I mean who really thinks "I can't afford this SUV but if i save few grand on it I can buy gas for a year or two"...

Didn't they already lower the price on trucks and SUVs once already? I don't read every thread in this forum so I'm not trying to argue with anyone who keeps up with this.

All I know is I was mortified when I read it was getting extended even further. I don't think there is an easy way out of this situation but they can't keep giving them away for ever. True enough, its not more than it was with all the rebates and sounds a little better, but soon they will have essentially changed their program in name only and will be back in the rebate boat.

 

Lessee.

If you close the plant or lay off a shift, they are collecting pay but making no product, essentially giving them a free paid vacation.

Or... you can slash some prices and break even or have a minor loss, & keep the guys making something of value, essentially paying them to make something instead of staying home and getting paid anyways.

Gee Red........ that's a tough one.