Slow Sales Intensify Pressure on GM
11-26-2005, 04:24 PM
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Slow Sales Intensify Pressure on GM
DETROIT - Despite a new round of discount offers, November will likely be another disappointing month for sales and profitability at General Motors Corp., intensifying pressure on the world's largest carmaker to speed up or expand the job cuts and plant closings it announced this week.
GM, Ford Motor Co. and DaimlerChrysler AG's Chrysler Group launched new price breaks in mid-November to lure customers to dealerships. The strategy worked, but not enough to counter other factors like jittery consumers and the hangover effect from a summer of near-record sales, industry analysts say.
"It seems that November got off to an excruciatingly slow start, with new incentives programs from Ford and GM just now beginning to boost showroom traffic," Merrill Lynch analyst John Casesa said this week in a note to investors.
Sales in the U.S. market — the largest in the world — can make or break automakers. Profits at GM, in particular, have been dragged down in recent months by faltering sales in North America, where it lost nearly $5 billion in the first nine months of this year. And while discounts boost sales and help cover fixed costs, they typically don't translate into higher profits.
Casesa said GM will likely see its eighth month of year-over-year sales declines this year. Those declines paused only over the summer, when GM allowed consumers to pay the employee price for their vehicles.
Ford also will likely see double-digit declines as sport utility vehicles continue to falter, Casesa said. Chrysler has been buoyed in the past by hot models including the Chrysler 300 sedan and a big increase in fleet sales, but it probably will be dragged down in November, Casesa said.
Asian automakers saw steadier sales in November, shielded from the downturns because they sell fewer trucks and SUVs and they didn't offer employee discounts over the summer. David Healy, an analyst with Burnham Securities, predicted Toyota Motor Corp. could see a 12 percent jump in November while other Asian automakers will see smaller increases.
Healy said the summer's heavy sales will combine with the weak fall for a year that's on par with last year in terms of total sales.
"Despite concerns that the current sales weakness represents a new recession in vehicle sales, we believe that the explanation continues to be payback for last summer's excesses," Healy said in a note to investors.
Automakers are scheduled to report their November results on Thursday.
The November results are another bitter pill for GM, which announced on Monday a plan to cut 30,000 jobs and close 12 facilities around the country to get its production in line with falling U.S. demand. GM's U.S. market share fell to 26.2 percent in the first ten months of this year compared to 33 percent a decade ago, the result of increasing competition from Asian rivals.
Wall Street was unimpressed, with many analysts suggesting the automaker needs to do far more to stem its losses. "While we give GM a 'B' for effort, this news is not as compelling as it sounds," said Shelly Lombard, an analyst with the corporate bond research firm Gimme Credit, in a note to investors.
Lombard said most of the reductions will come through natural attrition, which runs at about 6 to 7 percent per year. The rest will come through early-retirement incentives that must be approved by the United Auto Workers, which has already lashed out at GM over the plan. Lombard said to get meaningful savings GM needs to cut a jobs bank for laid-off workers, another perk the UAW likely won't give up easily.
Ford also recently announced it's planning to eliminate about 4,000 white-collar jobs in North America early next year as part of a restructuring plan. The action comes on top of 2,750 white-collar cuts at the No. 2 automaker this year. Ford Chairman and CEO Bill Ford said the automaker will announce significant plant closings and layoffs in January.
The return to incentives in November was particularly frustrating for U.S. automakers, who vowed to cut back on the costly promotions after the employee-discount blitz but reversed course after a dismal October, when GM and Ford each saw their sales drop 23 percent. Sales for Chrysler and Asian brands were flat last month compared to the year before.
GM, Ford and Chrysler had little choice but to turn to incentives this month, since automakers typically offer price breaks during the holiday season. Nissan Motor Co. plans to release details of its new incentive program on Thursday, a spokeswoman said, while Toyota already is offering discounts. Neither automaker would release further details about their incentives.
GM Chairman and CEO Rick Wagoner said GM's current incentive, which posts a maximum price consumers should pay on a red tag on each vehicle, is in line with its strategy of more transparent pricing. Wagoner said the employee discounts taught GM that customers don't like having to wade through incentives to figure out prices.
But in a teleconference with Wall Street analysts last week, Wagoner admitted the company would prefer to stop relying so heavily on discounts.
"We're winding along the road, but it's not as straight as we might like," he said.
GM, Ford Motor Co. and DaimlerChrysler AG's Chrysler Group launched new price breaks in mid-November to lure customers to dealerships. The strategy worked, but not enough to counter other factors like jittery consumers and the hangover effect from a summer of near-record sales, industry analysts say.
"It seems that November got off to an excruciatingly slow start, with new incentives programs from Ford and GM just now beginning to boost showroom traffic," Merrill Lynch analyst John Casesa said this week in a note to investors.
Sales in the U.S. market — the largest in the world — can make or break automakers. Profits at GM, in particular, have been dragged down in recent months by faltering sales in North America, where it lost nearly $5 billion in the first nine months of this year. And while discounts boost sales and help cover fixed costs, they typically don't translate into higher profits.
Casesa said GM will likely see its eighth month of year-over-year sales declines this year. Those declines paused only over the summer, when GM allowed consumers to pay the employee price for their vehicles.
Ford also will likely see double-digit declines as sport utility vehicles continue to falter, Casesa said. Chrysler has been buoyed in the past by hot models including the Chrysler 300 sedan and a big increase in fleet sales, but it probably will be dragged down in November, Casesa said.
Asian automakers saw steadier sales in November, shielded from the downturns because they sell fewer trucks and SUVs and they didn't offer employee discounts over the summer. David Healy, an analyst with Burnham Securities, predicted Toyota Motor Corp. could see a 12 percent jump in November while other Asian automakers will see smaller increases.
Healy said the summer's heavy sales will combine with the weak fall for a year that's on par with last year in terms of total sales.
"Despite concerns that the current sales weakness represents a new recession in vehicle sales, we believe that the explanation continues to be payback for last summer's excesses," Healy said in a note to investors.
Automakers are scheduled to report their November results on Thursday.
The November results are another bitter pill for GM, which announced on Monday a plan to cut 30,000 jobs and close 12 facilities around the country to get its production in line with falling U.S. demand. GM's U.S. market share fell to 26.2 percent in the first ten months of this year compared to 33 percent a decade ago, the result of increasing competition from Asian rivals.
Wall Street was unimpressed, with many analysts suggesting the automaker needs to do far more to stem its losses. "While we give GM a 'B' for effort, this news is not as compelling as it sounds," said Shelly Lombard, an analyst with the corporate bond research firm Gimme Credit, in a note to investors.
Lombard said most of the reductions will come through natural attrition, which runs at about 6 to 7 percent per year. The rest will come through early-retirement incentives that must be approved by the United Auto Workers, which has already lashed out at GM over the plan. Lombard said to get meaningful savings GM needs to cut a jobs bank for laid-off workers, another perk the UAW likely won't give up easily.
Ford also recently announced it's planning to eliminate about 4,000 white-collar jobs in North America early next year as part of a restructuring plan. The action comes on top of 2,750 white-collar cuts at the No. 2 automaker this year. Ford Chairman and CEO Bill Ford said the automaker will announce significant plant closings and layoffs in January.
The return to incentives in November was particularly frustrating for U.S. automakers, who vowed to cut back on the costly promotions after the employee-discount blitz but reversed course after a dismal October, when GM and Ford each saw their sales drop 23 percent. Sales for Chrysler and Asian brands were flat last month compared to the year before.
GM, Ford and Chrysler had little choice but to turn to incentives this month, since automakers typically offer price breaks during the holiday season. Nissan Motor Co. plans to release details of its new incentive program on Thursday, a spokeswoman said, while Toyota already is offering discounts. Neither automaker would release further details about their incentives.
GM Chairman and CEO Rick Wagoner said GM's current incentive, which posts a maximum price consumers should pay on a red tag on each vehicle, is in line with its strategy of more transparent pricing. Wagoner said the employee discounts taught GM that customers don't like having to wade through incentives to figure out prices.
But in a teleconference with Wall Street analysts last week, Wagoner admitted the company would prefer to stop relying so heavily on discounts.
"We're winding along the road, but it's not as straight as we might like," he said.
11-27-2005, 08:55 AM
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Chevy shot themselves in the foot on that one. Its the same with any item you heavily drop the price on. When it goes back up no one wants to buy it anymore. Using one of my own job as an example. I used to work for Dominos Pizza a like 10 years ago. Corporate Dominos came up with a summer promotion one year called the Mega Deal where you got a large pizza with any amount of toppings for $7.99. Needless to say it generated sales like never before. Our local franchise owner Brian was getting so much buisness that he decided to extend it beyond Dominos summer promotion to offer it as a regular special. So for 5 or 6 years this guy ran this special and couldn't understand how he was doing more buisness than ever but losing profits. Almost every order used the Mega Deal special. After he came to the realization of what he was doing to himself he tried raising the price to $8.99 much to him customers dismay. That still wasn't enough to cut it so he went back to the normal corporate price structure and lost most of his buisness. He then began having to close down shops. Now less than half of the shops that he used to own are still in operation. Its the same thing as with Chevy just on a lot smaller scale.
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