GM Could Be in for a Bumpy Ride

Before you go, we thought you'd like these...
Before you go close icon

2013 is a critical year for General Motors as the American auto giant tries to overcome the stigma of bankruptcy and retake market share in the U.S. Management has been touting a series of high-profile vehicle launches, but none is more important than the company's new line of full-size pickups. If successful, the new pickups have the potential to boost GM's profitability, but in the meantime GM has to manage a complex transition between the previous architecture and the new one. Analysts and investors have worried that GM may have too much inventory of the old pickup trucks, which could force margin-sapping discounts or crimp sales of the new models. I expect these concerns to weigh on the stock until the transition is more or less complete at the end of the year.

New trucks coming
GM is launching new versions of the Chevy Silverado and GMC Sierra pickups this spring. On Monday, executives announced that Silverado pricing would remain the same compared to the current generation. Moreover, GM claims that the 5.3-liter EcoTec V8 engine (which will be an $895 option for buyers) will provide better fuel economy than competitors' V8 engines, and will even edge out Ford's V6 EcoBoost by one mile per gallon on the highway.

The risk for GM is that hyping the launch of the new pickups will depress demand for the old ones. With a better version to be available in a few months, customers who can delay their purchases may do so, unless they are drawn in by heavy incentive spending.


Inventory issues?
For investors, uncertainty about the near-term pickup sales trajectory is heightened by the volatility of GM's pickup sales pace recently. Weak full-size pickup sales in November led to a spike in inventory worries, but a strong December brought inventories down to from 139 days of supply to 80. January sales were also strong, but inventories increased and days of supply jumped to 117. Strong February sales brought the days of supply number back below 100, but a weaker March caused GM to end the first quarter with 117 days of supply in inventory once again.

Last month's reversal came as Silverado sales grew 8.4% year over year and Sierra sales were flat compared to 2012. Combined, GM full-size pickup sales were up 6% to 53,378 units. This fell short of the 14.9% gain expected by Kelley Blue Book analyst Alec Gutierrez. By contrast, Ford sold 67,513 F-Series trucks, up more than 16% over the prior year, and Ram pickup trucks were up 25% year over year with 33,831 sold. It is too early to know whether GM's underperformance compared to peers last month was a blip or the beginning of a trend caused by anticipation of the new models. Management professes to be very comfortable with the current inventory level of approximately 240,000 full-size pickups. However, if sales slow any further in the spring, GM will need to ramp up incentive spending to clear the old inventory.

Bumps in the road
I like the long-term story at GM. The company is in the midst of the biggest product launch period in its history, and has made considerable progress in terms of delivering competitive, high-quality vehicles. That said, shareholders should recognize that there are likely to be bumps in the road as GM tries to execute its product launch plans. The pickup inventory situation is the biggest danger I see for GM this year. However, once the company gets through what may be a choppy 2013, shareholders could see some nice gains.

Worried about GM?
Few companies lead to such strong feelings as General Motors. But ignoring emotions to make good investing decisions is hard. The Fool's premium GM research service can help, by telling you the truth about GM's growth potential in coming years. (Hint: It's even bigger than you think. But it's not a sure thing, and we'll help you understand why.) It might help give you the courage to be greedy while others are still fearful, as well as a better understanding of the real risks facing General Motors. Just click here to get started now.

The article GM Could Be in for a Bumpy Ride originally appeared on Fool.com.

Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners