Seven years ago, General Motors executives wore lapel pins bearing the number “29.” Market share had just dipped behind that number, and Rick Wagoner was trying to encourage his minions to work harder and push market share back above that number. Didn’t happen, of course. Four-and-a-half years later, GM’s share had sunk to the low 20s and “29” would have meant the year the stock market and economy were emulating.
Thursday morning, GM announced $3.2 billion in net profits for the first quarter of 2011, with $1.5 billion of that attributed to sale of Delphi preferred shares and of its Ally Bank, its reconstituted GMAC financing arm. Including those special items, this marks GM’s best quarterly profit since 1990, according to Bloomberg Business Week. With or without the Delphi interest/Alphi sale, it’s GM’s fifth consecutive quarterly profit. Net revenue was $36.2 billion, $4.7 billion better than the first quarter a year ago.
GM says it did this with 19.0 percent share of the U.S. market, a full 10 points below the hapless plea of those executive lapel pins from 2004. North American share was 18.3 percent in the first quarter and its global market share is 11.5 percent.
Who cares about market share? GM made money as gasoline in the U.S. crept up toward $4 per gallon. Like everyone else in the U.S. market, GM still has way more margin on body-on-frame trucks and SUVs, but Wagoner promised us years ago as CEO that the company would make money on the Chevy Cruze, thanks to reduced fixed costs and the 2007 United Auto Workers contract.
He wasn’t allowed to stick around long enough to see how a U.S. Treasury and Canadian/Ontario bailout, a Section 363 bankruptcy reorganization and more concessions from the UAW would help make the small car profitable for the company.
And I can’t avoid mentioning the Chevrolet Cruze’s latest recall, announced the same morning as the fifth consecutive quarterly profit. Chevy is recalling 154,112 of them, which includes 99,860 sold in the U.S. since last year, plus Cruzes sold in Canada and those still on the ground, from factory to showrooms. This’ll cost GM, though recalls affect every brand in the industry. These days, as long as you don’t handle recalls the way Toyota did in early 2010, you’ll probably get through them okay.
GM Chairman and CEO Dan Akerson, though he’s no stranger to victory lap hyperbole, called the Q1 results “steady progress, but with more work to do.” On Tuesday, GM reported that it has as 48-day supply of cars, a 52-day supply of crossover utilities and a 111-day supply of trucks. By Thursday, Automotive News reported GM would cut production of its full-size pickups to reduce stock. That means some variable cost cuts, potentially reduced incentive expenditures and lower net revenues. It can’t be overemphasized how profitable big trucks and SUVs are. Even with big incentives GM can make big money on Chevy Silverados, Tahoes, Suburbans, GMC Sierras and Yukons, etc.
It could mean another downward blip in market share, but again, who cares?
Wall Street cares. Its analysts are the most concerned about market share, because it is “metric” they can understand. I’ve been saying for several years that the U.S. market is becoming more like Western Europe’s, not in terms of what we buy so much as what shares we buy. It’s the “18, 18, 18”rule, in which the top three automakers each hold about 18 percent market share. With 19 percent, GM actually has an advantage, even after shedding Pontiac, Saturn, Saab and Hummer. Ford and Toyota both are in the mid-teens.
The three keys, as Renault/Nissan’s Carlos Ghosn once said, as well as nearly every auto exec with a pulse since his statement, are product, product, product. The Chevy Cruze sells for an average transaction price some $3,000 to $4,000 above the old Chevy Cobalt’s. Launching the Cruze here some 18 months after it went on sale in Europe didn’t hurt, as the development costs, which usually are front-loaded at the beginning of the product cycle, were at least partially accounted for by the time of the North American launch.
The next thing GM must do, beyond getting through the current quarter while cutting truck production, is to accelerate its product cycle to match Ford’s newly aggressive mid-cycle updates. Even though GM is a much smaller company than it was before the summer of ’09, it’s still larger than Ford, probably with more remaining waste and bureaucracy. The advantage to being larger, though, is that GM still has a broader range of products than Ford, including future rear-wheel-drive platforms. Cadillac is still in the luxury game and Buick, even if its cars are less well equipped and priced lower than Lincolns, can be considered competitive with that brand.
Good as Thursday’s numbers are, they’re small beer next to the $37 billion or so in U.S. Treasury loan guarantees that GM hasn’t paid back. When Treasury sells off its remaining 26 percent of GM, it will take much more than Thursday’s closing stock price of $32.02 per share in order to break even. You can calculate that out, but your calculations won’t take into effect the 1 million+ jobs the automaker bailouts saved, not to mention the question of whether we’d be in the middle of the Second Great Depression, now.
Forget “29.” Don’t worry much about “19” except that it’s higher than 18. Fact is, U.S. manufacturing, as represented by GM, Ford and Chrysler, not Microsoft, Intel, Apple and Dell, is making money, for now. I’ll take black ink over 29 percent market share any day.
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