Bloomberg News

GM Beats Estimates for May Sales as U.S. Housing Returns

June 03, 2014

GM Cadillac Escalade SUV

The General Motors Co. (GM) Cadillac 2015 Escalade sports utility vehicle (SUV) is displayed during the 2014 North American International Auto Show (NAIAS) in Detroit, Michigan, U.S. Photographer: Andrew Harrer/Bloomberg

General Motors Co. (GM:US) posted its best month of U.S. auto sales since before the collapse of Lehman Brothers, joining other automakers reporting deliveries in May that exceeded analysts’ estimates on demand for pickups and sport-utility vehicles.

GM’s sales, helped by redesigned Chevrolet Silverado pickups and Cadillac Escalade SUVs, rose 13 percent to 284,694, the Detroit-based automaker said today in an e-mailed statement. That beats a 6.4 percent increase projected by the average of analyst estimates, showing that consumers weren’t scared off by recent small-car recalls.

Ford Motor Co. (F:US), Chrysler Group LLC, Toyota Motor Corp. (7203), Honda Motor Co. and Nissan (7201) Motor Co. also reported better sales than analysts had predicted. Industrywide sales rose 11 percent to 1.61 million light vehicles, researcher Autodata Corp. said in an e-mailed statement. That topped the average analyst estimate for a total of 1.54 million. The annualized pace, adjusted for seasonal trends, rose to 16.8 million, the highest since February 2007. Low interest rates kept customer payments attractive and helped spur housing activity.

“We’ve had a lot of pent-up demand from the first quarter that was pretty soft because of weather conditions,” said Michelle Krebs, an analyst with researcher AutoTrader.com. “There’s no question there’s a correlation between housing starts and pickup sales.”

Housing Starts

GM with its new pickups, Ford with SUVs and Chrysler with its Jeep brand were able to take advantage of a rising market buoyed by improved housing starts. The pace of U.S. home construction jumped in April to its highest level since November. Housing starts climbed 13.2 percent to a 1.07 million annualized rate following March’s 947,000 pace, the Commerce Department reported on May 16. Permits for future projects increased, a sign activity might accelerate in coming months.

GM rose 1.1 percent to $35.26 at the close in New York, narrowing the discount investors pay for its earnings relative to other consumer discretionary (GM:US) companies. Ford gained 0.7 percent to $16.55 after earlier reaching $16.72, the highest intraday price since January.

“The momentum we generated in April carried into May, with all four brands performing well in a growing economy,” Kurt McNeil, GM’s U.S. vice president of sales operations, said in the statement. The month marked GM’s best May in seven years and best since August 2008, the month before Lehman Brothers Holdings Inc. filed for bankruptcy. Gains by GM suggest consumers are separating new models on the lot from the older small cars that make up the company’s 2.59 million recalled vehicles linked to at least 13 deaths.

All Rise

Ford’s light-duty vehicle sales rose 3 percent to 253,346 last month, the Dearborn, Michigan-based company said in an e-mailed statement. The automaker’s sales were projected to decline 0.2 percent according to the average of 10 analysts surveyed by Bloomberg. Nissan reported sales jumped 19 percent in May, beating estimates for an 11 percent increase. Toyota (TM:US) deliveries gained 17 percent, topping a projected 8.1 percent rise. Honda’s increased 9 percent, the company said on Twitter, exceeding estimates for a 4.5 percent gain.

Chrysler’s sales rose 17 percent to 194,421 vehicles in May, the Auburn Hills, Michigan-based company said in a statement. The third-largest U.S. automaker was projected to report a gain of 14 percent, the average of eight analyst estimates.

“Our Jeep sport-utility vehicles and Ram pickups continued to do well in May as our dealers reported brisk May sales over five weekends and the Memorial Day holiday,” Reid Bigland, Chrysler Group’s U.S. sales chief, said in a statement. The Auburn Hills, Michigan-based automaker’s Jeep brand gained 58 percent while its Ram pickups rose 17 percent increase, the company said.

Industry Outlook

Analysts surveyed by Bloomberg had projected a 16.1 million May sales pace, in line with full-year projections.

While U.S. auto sales exceeded 16 million from 1999 through 2007, domestic automakers weren’t consistently profitable. This time, pricing discipline and lower costs are producing steady income for Chrysler and GM, five years after their bankruptcies, and Ford, which financed its own restructuring.

The gains continue the resurgence of the U.S. auto market, half a decade after the near-death of the U.S. auto industry forced restructurings that led to fewer brands and factories and more flexibility in labor contracts. The automakers’ margins also reflect the financial impact of increased U.S. energy output, widely available credit and management’s resistance to the heavy discounting car companies long used to prop up sales at the expense of profit.

‘Different Time’

The result is a lineup of U.S.-made cars and trucks that compare favorably with vehicles made by Toyota, Honda and other foreign manufacturers -- showing how far the industry has come since June 2009, when GM filed a government-backed bankruptcy one month after Chrysler’s Chapter 11 filing.

“Short of calling 2009 and bankruptcy a lucky break, it’s two different companies, different management, different products,” said Kevin Tynan, auto analyst for Bloomberg Industries. “It’s very easy for the consumer to look at it and say, ‘This is different; it was a different time and these cars are at least worthy of my consideration.’”

Testament to Detroit’s comeback is GM, which is growing even as it moves this year to recall 14 million vehicles in the U.S., including the 2.59 million small cars no longer in production for a faulty ignition switch linked to 13 deaths -- suggesting buyers see the flaws as a legacy of the past company, rather than a defining moment of today’s GM.

GM On Track

“There’s some risk associated with the recalls, but it hasn’t been evident in GM’s sales numbers so far,” said Jeff Schuster, senior vice president of forecasting for researcher LMC Automotive of Troy, Michigan. “The jury is still out, but at this stage, it’s not derailing their momentum.”

Now Detroit is producing some of the most competitive vehicles in a generation. Ford’s Fusion has been a critical favorite, closing the gap against top Japanese models in the competitive family-sedan segment. Chrysler’s Jeep, with its updated Grand Cherokee and smaller Cherokee, is outpacing the robust growth of the market for sports-utility vehicles. Grand Cherokee deliveries rose 13 percent to 18,068 and Chrysler sold 15,992 of its Cherokee, which debuted last fall. Chrysler’s Town & Country minivan rose 37 percent to 14,799 and the Dodge Grand Caravan, rose 10 percent to 14,232 deliveries in May.

Chrysler’s strength was its trucks and SUVs, as car sales fell 27 percent, hurt by the older version of the 200 and the outgoing Avenger. The 200 is being replaced by a thoroughly revamped model which began reaching dealers last month. Sales of the compact Dodge Dart rose 16 percent to 8,644.

Improving Models

GM, for its part, placed two Cadillacs among the best at avoiding crashes, according to a study last week by the Insurance Institute for Highway Safety -- and also featured the only two non-luxury cars to make the list. One of the two, the Chevrolet Impala, was the first domestic car ever designated by Consumer Reports magazine as the U.S. market’s top sedan.

U.S. auto sales peaked at 17.4 million in 2000. During that stretch, Ford reported losses in 2000 and 2001, as well as 2006 through 2008. The old General Motors Corp. lost money (MTLQQ:US) from 2005 until its bankruptcy. Chrysler at the time was part of DaimlerChrysler AG and didn’t report unit results.

When the companies did make money, Tynan said, much of it was generated by the financial arms: Ford Motor Credit and GMAC.

“If you look just at automotive operations, it’s not even close,” he said of today’s more-sustainable industry.

Now, Chrysler provides income to support parent Fiat SpA. (F) Ford is coming off of record North American profits. GM reported a first-quarter net income, despite $1.3 billion in recall-related costs.

Challenges Ahead

Plenty of challenges remain, including the arrival of upstarts like Tesla Motors Inc. (TSLA:US)’s sleek, electric Model S and Google Inc. (GOOG:US)’s steering-wheel-free driverless car.

More immediately, Detroit must navigate the rising tide of recalls that could threaten freshly rebuilt reputations. Total recalls in the U.S. have reached almost 23 million, the most since 2004’s 30.8 million. And June has just begun.

Even with recall-related risks and growing competition from the likes of South Korea’s Hyundai Motor Co. (005380) and Kia Motors Corp. (000270), which increased sales 8.5 percent last month, topping the average estimate for a 4.5 percent gain, the Detroit Three automakers are as capable as they’ve ever been in one of the world’s most fiercely contested industries, said Harry J. Wilson, a member of President Barack Obama’s Automotive Task Force that led GM and Chrysler through bankruptcy in 2009.

“The Big Three are holding their own and actually increasing share,” Wilson, now CEO of restructuring adviser Maeva Group LLC, said May 22 at a Brookings Institute forum in Washington, D.C.

To contact the reporters on this story: Mark Clothier in Southfield, Michigan, at mclothier@bloomberg.net; Tim Higgins in Detroit at thiggins21@bloomberg.net; Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net Niamh Ring


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