Commentary: Holding Firm on Cars

2014 Chevrolet Impala LS 001
Photo by Randy Stern

In the aftermath of Ford's first quarter earnings conference call, all eyes were pointed to Renaissance Center and General Motors' CEO Mary Barra’s office. We were wondering if GM would follow suit and trim their car lines along with the same justification for doing so.

Instead, Barra stated that GM will not do so because "the segments were significant" and that the investments were made in production facilities and sales support for them.

It is not that we do not believe Barra when she made that statement. It is because of what Ford announced they would do over the next two years. It is also harkening back to what Fiat Chrysler Automobiles did a couple of years ago in canceling car lines and shifting production of SUVs and trucks to replace them on their assembly lines.

However, if we were to believe Barra’s statement regarding GM's commitment to sedans, then why was there news that the Cadillac ATS sedan is going out of production?

The truth is in the sales report. In the case of General Motors, they have rescheduled their frequency of their reporting to quarterly rather than monthly. This is not a barometer that can be measured in terms of the marketplace. When you need to measure how your products are doing, there is a standard that needs to be followed. Unfortunately, the quarterly sales reporting simply does not meet that standard when measuring estimated annual sales volume across the entire industry, known as the SAAR.

As I discussed in the article regarding Ford's cancellation of most of their car lines, the same pattern is seen over at GM. Based on the last report in March of 2018, there seems to be a one-loss/one-gain pattern with sales of sedans losing to SUVs and crossovers at Buick. Cadillac has seen some gains across their lineup, but you would see double-digit growth in Escalade and XT5 volumes. The only anomaly was the XTS sedan, which was the only car in the Cadillac lineup to experience a double-digit sales uptick.

At Chevrolet, the March, 2018 sales report showed a mixed bag. We do see sales volume losses with most of the car lines, the Malibu, Sonic, and Spark saw gains in the report. It is ironic that one of the car lines rumored to be slated for elimination at Chevrolet had a double-digit rise in March. In the meantime, we do see Chevrolet’s trucks, vans, SUVs, and crossovers leading the way for the brand as keeping with current market trends.

It brings up the question of whether GM can hold on to their sedan, coupe, and hatchback lines. Based on the last sales report published by the company, the answer would be "no." At least, "not yet."

The one thing we need to understand that the probable cancellation of any product may just be for the USA and Canada. Chevrolet offers these products in various parts of the world, even some with other badges. Not to mention, that the smaller products are either developed fully by GM’s unit the Republic of Korea or in part with the teams in Detroit.

Yet, this is GM’s home market. This is where Chevrolet, Buick, Cadillac, and GMC focus their efforts on products that fit their customer’s needs. This company already departed from various markets worldwide or restricted national activities to just sales. What decisions are made has to be in the best interest of this market.

Could there be some product eliminations? Considering recent announcements by Ford and Fiat Chrysler Automobiles, we may end up expecting such announcements by GM. We may not like it, but we’re only fighting our own consumer habits and choice by perhaps preventing them from happening.

This is a tough pill to swallow. Our purchasing habits have made these models vulnerable – regardless of manufacturer. If we're no longer buying Chevrolet Impalas, does it make sense to continue purchasing them if the sales volumes and revenue from each unit continues to eat into GM’s profits?

With the other Michigan-based automotive firms, the fear would be lost jobs due to eliminated models. Ford quelled those rumors as they affirmed that production will be supplanted by other products. When Chicago's Torrence Avenue plant stops making the Taurus, Ford stated that its capacity will be supplanted by a new product. The same with the other affected plants in both the USA and Mexico. FCA simply shifted production of key volume products to replace the canceled models, such as moving the 2019 Jeep Cherokee in the space left by the Dodge Dart, the last generation Jeep Compass, and Patriot.

In GM's case, it would be easy to supplant product to fill the gaps of canceled products. At Lansing Grand River Assembly, the ATS sedan represents a small drop in capacity. Cadillac promised new product to replace the ATS and CTS currently sharing the assembly line with the Chevrolet Camaro.

But what if GM canceled the Impala? How will GM shift production at Hamtramck? Assembly of the Cadillac CT6 and the Chevrolet Volt may not be enough to sustain three shifts at the plant. Could there be new product added to Hamtramck along with a shift of current product to other plants, such as Grand River? It is possible, but I doubt that GM would close an assembly facility because they do not have a sustainable product mix to keep it going.

These are considerations that need to be undertaken before anyone at GM decides to pull more models from their North American – and, to a point, global – lineups. Which is why we should be watching RenCen for what could be the most important sales report and earnings call in Mary Barra's career.

We can only speculate as GM's second-quarter sales report and subsequent earnings call are looming in July. The only question remains is what will Barra say – or, not say – at that time.

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