Sales decline weighs on GM
Friday, July 06, 2007
Sales decline weighs on GM
Wall Street drives stock down after June demand drops 21 percent; dealer calls for higher incentives.
Sharon Terlep / The Detroit News
Slumping truck sales and hand-wringing on Wall Street have cast doubt over General Motors Corp.'s turnaround bid, threatening to overshadow the automaker's cost-cutting and product successes of the past year.
This week's June sales report showed surprising weakness in GM's new full-size pickup trucks, a linchpin of the automaker's comeback plan.
An investment analyst downgraded GM on Thursday, fueling a 3 percent decline in GM shares.
And with GM still burning cash in its key North American operations, analysts say second-quarter earnings due out later this month are expected to be less than stellar.
"We believe the near term outlook may get rocky," Deutsche Bank analyst Jochen Gehrke wrote in a research note in which he reduced GM's 2007 production and earnings forecasts. "We see no reason for GM to post strong earnings or market share trends over the next few months."
GM's June sales were down 21 percent from a year ago, with sales down 7 percent year to date.
Particularly troubling is that sales of GM's redesigned full-size pickup trucks fell 23 percent, while sales of Toyota's new Tundra, its first full-size pickup, more than doubled. The Tundra was helped along by no-interest loans and other incentives adding up to $5,083 per pickup, according to auto data firm Edmunds.com.
"The bottom line was that it was a tough quarter and a first half that was weaker than we expected," GM sales analyst Paul Ballew said.
GM blamed the decline on its strategy of scaling back incentives and low-margin fleet sales, though the extent of the drop surprised many industry watchers. GM's foreign competitors also offered more aggressive discounting than expected, which hurt each of Detroit's automakers.
Knoxville, Tenn.-based Chevrolet dealer Jim Quinlan said GM's Chevy Silverado is as good as advertised but it is being hurt by attractive deals on the Dodge Ram and Toyota Tundra. "We are just not in the game on incentives," he said. "We are not competitive at all."
Pointing to disappointing June sales as well as a market made volatile by rising gas prices and continuing worries in the mortgage market, Bear Sterns analyst Peter Nesvold downgraded GM's stock to a peer perform rating from outperform.
Nesvold bolstered his GM rating less than two months ago, saying the automaker could gain significant concessions from the UAW.
GM's stock has climbed since then, and Nesvold, in his Thursday note, said it's time for investors to cash in.
He then quoted economist John Maynard Keynes: "When the facts change, I change my mind."
GM shares closed Thursday at $36.76, down $1.22, or 3.2 percent.
GM's troubles put even more pressure on the automaker and the United Auto Workers to reach a deal that will help the automaker cut labor costs.
The labor question is the lingering unknown in a turnaround that began after a $10 billion loss in 2005, said auto analyst John Casesa of the Casesa Shapiro Group.
Since then, GM has successfully eliminated waste and downsized to cut costs. It's also becoming clear that the automaker's market share woes aren't going to lift dramatically anytime soon, he said.
"On revenue, the company is struggling, on cost it has done a fabulous job -- the open question is labor relationship," Casesa said. "The turnaround will hinge on automaker's ability to forge a radically different relationship with the UAW."
Casesa said the stock price drop isn't cause for too much concern, given GM's gains over the past year.
Even after Thursday's drop, GM shares are up more than 20 percent from a year ago.
Some promising product launches, namely the redesigned Chevrolet Malibu and Cadillac CTS sedans, are set for later this year. Analysts also seemed hopeful that GM will strike a favorable deal with the UAW.
"We nonetheless believe structural changes will be significant," Gehrke wrote. "And that these changes will prevail in the intermediate term."
You can reach Sharon Terlep at (313)223-4686 or sterlep@detnews.com.
© Copyright 2007 The Detroit News. All rights reserved.
Sales decline weighs on GM
Wall Street drives stock down after June demand drops 21 percent; dealer calls for higher incentives.
Sharon Terlep / The Detroit News
Slumping truck sales and hand-wringing on Wall Street have cast doubt over General Motors Corp.'s turnaround bid, threatening to overshadow the automaker's cost-cutting and product successes of the past year.
This week's June sales report showed surprising weakness in GM's new full-size pickup trucks, a linchpin of the automaker's comeback plan.
An investment analyst downgraded GM on Thursday, fueling a 3 percent decline in GM shares.
And with GM still burning cash in its key North American operations, analysts say second-quarter earnings due out later this month are expected to be less than stellar.
"We believe the near term outlook may get rocky," Deutsche Bank analyst Jochen Gehrke wrote in a research note in which he reduced GM's 2007 production and earnings forecasts. "We see no reason for GM to post strong earnings or market share trends over the next few months."
GM's June sales were down 21 percent from a year ago, with sales down 7 percent year to date.
Particularly troubling is that sales of GM's redesigned full-size pickup trucks fell 23 percent, while sales of Toyota's new Tundra, its first full-size pickup, more than doubled. The Tundra was helped along by no-interest loans and other incentives adding up to $5,083 per pickup, according to auto data firm Edmunds.com.
"The bottom line was that it was a tough quarter and a first half that was weaker than we expected," GM sales analyst Paul Ballew said.
GM blamed the decline on its strategy of scaling back incentives and low-margin fleet sales, though the extent of the drop surprised many industry watchers. GM's foreign competitors also offered more aggressive discounting than expected, which hurt each of Detroit's automakers.
Knoxville, Tenn.-based Chevrolet dealer Jim Quinlan said GM's Chevy Silverado is as good as advertised but it is being hurt by attractive deals on the Dodge Ram and Toyota Tundra. "We are just not in the game on incentives," he said. "We are not competitive at all."
Pointing to disappointing June sales as well as a market made volatile by rising gas prices and continuing worries in the mortgage market, Bear Sterns analyst Peter Nesvold downgraded GM's stock to a peer perform rating from outperform.
Nesvold bolstered his GM rating less than two months ago, saying the automaker could gain significant concessions from the UAW.
GM's stock has climbed since then, and Nesvold, in his Thursday note, said it's time for investors to cash in.
He then quoted economist John Maynard Keynes: "When the facts change, I change my mind."
GM shares closed Thursday at $36.76, down $1.22, or 3.2 percent.
GM's troubles put even more pressure on the automaker and the United Auto Workers to reach a deal that will help the automaker cut labor costs.
The labor question is the lingering unknown in a turnaround that began after a $10 billion loss in 2005, said auto analyst John Casesa of the Casesa Shapiro Group.
Since then, GM has successfully eliminated waste and downsized to cut costs. It's also becoming clear that the automaker's market share woes aren't going to lift dramatically anytime soon, he said.
"On revenue, the company is struggling, on cost it has done a fabulous job -- the open question is labor relationship," Casesa said. "The turnaround will hinge on automaker's ability to forge a radically different relationship with the UAW."
Casesa said the stock price drop isn't cause for too much concern, given GM's gains over the past year.
Even after Thursday's drop, GM shares are up more than 20 percent from a year ago.
Some promising product launches, namely the redesigned Chevrolet Malibu and Cadillac CTS sedans, are set for later this year. Analysts also seemed hopeful that GM will strike a favorable deal with the UAW.
"We nonetheless believe structural changes will be significant," Gehrke wrote. "And that these changes will prevail in the intermediate term."
You can reach Sharon Terlep at (313)223-4686 or sterlep@detnews.com.
© Copyright 2007 The Detroit News. All rights reserved.
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