GM Is Back In Black, Back To Incentives
A few months back I followed GM for a core strategy course. Researching a storied, legendary company could not have been any more depressing. Legacy costs -- pensions, health care -- were dragging down the company just as much as its bloated corporate structure and poorly aimed product lines. There looked to be hope on the horizon, but when and how soon? Turning around a big ship isn't like doing a U-turn in a Yugo.
Well look here, GM posted a $891MM profit in Q2. In Q2 last year the company lost $3.4B. That's an improvement of $4.3B, for those of you keeping score at home. The improvement came mainly from "key growth markets." North American operations lost reproted a net loss of $39MM. That was a big improvement from last year's $3.95B loss in Q2 last year. How did GM improve North America?
"GM said that its North American results reflect reduced fixed costs and that a high percentage of its vehicle sales last quarter were of profitable large trucks and well-equipped vehicles."
Back to the SUVs, are we? Kind of like McDonalds going back to the 42-ounce soda this summer. If I were an analyst or investor, I'd want to see North American operations buoyed by something other than large trucks. GM can't go to the same well forever. At least one analyst thinks North America will turn around.
"'One of the most overlooked benefits of GM is its global strength,'' said Brandon Ferro, an analyst with KeyBanc Capital Markets in Cleveland. 'It goes to show you that once they get North America on track, you've got a potentially pretty profitable company over the long term.'"
Related news: GM is offering 0%, five-year financing that is a break from the company's previous strategy of selling vehicles without rebates. Seems that inventories and competitors are to blame.
"Joseph Amaturo, an analyst with Buckingham Research, said in a note yesterday that full-size trucks and sport-utility vehicles are 'clearly GM's most profitable' vehicles, representing an estimated $7,000 to $10,000 in per-vehicle profit margins. He said sales and production of the vehicles will 'come under pressure during the second half of 2007 and into 2008 as a result of higher fuel costs and the aging of the vehicle(s).' He also said 'irrational incentives from competitors' could add extra pressure."
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