Silverados and Cadillacs Drive Gains for GM
General Motors on Monday reported its highest monthly U.S. sales since September 2008, the eve of the financial crisis, as Detroit's largest automaker continues to gain ground with new products and a growing U.S. economy.
GM's sales were up just 3%, but that modest-sounding number belies what was actually quite a good month for GM.
GM's total year-over-year sales increase was low because of the timing of some large fleet deliveries, but its retail sales increased 9% in May -- and some of GM's most profitable products did especially well during the month.
Big sales gains where it matters most to the bottom line
What are the most profitable products in the auto business? It varies somewhat by automaker, but if you said "pickup trucks, SUVs, and luxury cars," you'd be on the right track.
While GM showed pretty solid growth across the board, those areas were all especially good for the General in May -- a scenario that bodes very well for GM's second-quarter profits.
As GM's U.S. sales chief Kurt McNeil said in a conference call on Monday, "Quite simply, it's a great time to be in the truck business."
Following a trend seen at both Ford and Chrysler, sales of GM's full-sized pickups -- the Chevy Silverado and GMC Sierra and their heavy-duty siblings -- were together up 23% on the month. Pickup sales are being driven by a series of trends in the economy, and this factor: The average age of pickups in the U.S. is higher than the overall average age of American vehicles, and older than it has been in a while -- 11 years or so.
So we start with the fact that there are a lot of tired pickups out there. Now, add in the fact that housing prices are rising -- and new-home construction has begun taking off, after several quiet years. Also add in the fact that oil-services companies in pickup-loving places like Texas are seeing increased business because of the U.S. oil and gas boom.
The upshot? A lot of buyers -- both individuals and small businesses, like contractors -- are feeling it's time to replace those old pickups. And GM, like its Detroit rivals, is the happy benefactor of that trend -- a trend it's been riding without a significant increase in incentives, even though it's selling down supplies of two models that are set to be replaced shortly.
Nice gains for GM that go beyond pickups
Pickups aren't the only big-profit products that are doing well for GM. Sales of its big SUVs like the Chevy Tahoe and GMC Yukon were up 30% on the month. Again, that's a strong result for a family of products that will be replaced not long after GM's new pickups are launched, probably early next year.
But there's another big story for GM, and that's its Cadillac brand. GM has been investing heavily in a long-term plan to turn Cadillac into a serious global rival to the German luxury brands, part of a global effort by CEO Dan Akerson to improve GM's profitability, which trails its biggest rivals. While that plan still has several years to unfold, some of the fruits are already showing up in Cadillac's U.S. sales numbers.
Cadillac's sales were up 39.9% in May, and are up 36.6% so far in 2013. What's driving that growth? Simple: great new product. The ATS and XTS sedans, both introduced last year, have impressed critics -- especially the ATS, a true rival to the BMW 3-Series that might be GM's best-ever sedan. Both have given Cadillac's overall sales numbers a big boost -- even as sales of the brand's longtime mainstay sedan, the CTS, decline in anticipation of the all-new version due this fall.
But GM had decent sales across the board. Its crossovers continued to score nice gains, and GM's small cars -- the Chevy Spark, Sonic, and Cruze, and the Buick Verano -- were up 27% as a group in May.
The upshot: There's good news for GM's profits here
Long story short, while GM's overall sales increase didn't meet analysts' expectations because of a surprise dip in fleet sales, the strong gains in key segments continue to show that GM is on the right track. The company is in the midst of a major overhaul of its U.S. product line, with all-new pickups, a new Cadillac CTS, two new Buick sedans, and a revamped Chevy Malibu all due to be launched just in the next few months.
GM is going to great lengths to deliver all of those products on time and without the teething troubles that have marred recent new-product launches from some of its rivals. Assuming those launches go well, we could see GM's U.S. sales - and profits -- shift into an even higher gear.
The article Silverados and Cadillacs Drive Gains for GM originally appeared on Fool.com.Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear.The Motley Fool recommends BMW, Ford, and General Motors and owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.
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