GM Defies Recall Taint as U.S. Rebound Spurs Truck Demand: Cars

May 02, 2014 12:01 am ET

May 2 (Bloomberg) -- General Motors Co. is shrugging off the impact of a 2.59 million small-car recall with new Chevy Silverado and GMC Sierra pickups that are luring buyers into dealerships as the weather warms and the U.S. economy rebounds.

GM sales rose 6.9 percent in April, beating the average of industry analysts surveyed by Bloomberg that projected a 5.7 percent gain. Sales of GM’s redesigned full-size pickups gained 12 percent while large sport-utility vehicle deliveries increased 22 percent, the Detroit-based company said.

The year-over-year “trend in GM’s total and retail sales has only improved since news of its ignition-switch recall affecting older-model cars became widely reported upon in the media -- we believe furthering our thesis that GM market share will not be materially impacted as a consequence of the issue,” Ryan Brinkman, an industry analyst with JPMorgan Chase & Co., said yesterday in a note to investors.

GM’s sales gain, after better than projected earnings reported last week, are a bright spot for Chief Executive Officer Mary Barra, grappling with the recalls for faulty ignition switches. Federal safety regulators, Congress and the Justice Department are investigating why it took the company more than a decade to address the defective parts.

While GM beat sales estimates in April, Ford Motor Co. and Chrysler Group LLC missed analysts’ estimates as industrywide sales rose 8.1 percent to 1.39 million cars and lights trucks, according to researcher Autodata Corp. The annual sales rate, adjusted for seasonal trends, climbed to 16 million from 15.2 million a year ago. That missed analysts’ projections for a 16.2 million pace.

Stock Gain

GM rose 1.2 percent to $34.90 yesterday, paring losses for the year to 15 percent. The Standard & Poor’s 500 Index, little changed yesterday, has gained 1.9 percent this year.

Analysts surveyed by Bloomberg say GM will reach $42.50 a share in 12 months to create a 22 percent return from yesterday. This is the 26th highest projected return among S&P 500 companies, according to data compiled by Bloomberg. Among the 100 largest global auto companies, GM has the fourth lowest price-to-cash flow ratio, fifth lowest price-to-sales ratio and 35th lowest price-to-earnings ratio.

GM joined Ford, Chrysler and Toyota Motor Corp. in boosting sales of trucks in the U.S. last month.

Ford, Chrysler

Ford, as it named Mark Fields its new CEO, said pickup sales gained 8 percent, while cars fell 9.1 percent. Ford’s total light-vehicle deliveries fell 0.8 percent. Analysts had projected a 3.1 percent increase. Chrysler’s 17 percent jump in Ram pickups and 52 percent surge in Jeep brand sport-utility vehicles weren’t enough to top estimates for a 16 percent gain. A 14 percent gain at Chrysler produced its best April since 2007.

Pickup sales were helped by pent-up demand coming out of January and February when bad winter weather kept buyers away from showrooms, suggesting contractors are feeling more confident about housing starts, Mark Wakefield, leader of AlixPartners LLP’s automotive practices in the Americas, said yesterday in a telephone interview.

“The cold snap recovery has quite a bit to do with it,” he said. “I don’t think we’re seeing a mass return to the urban cowboy that we had before.”

Toyota’s Rise

Toyota sales rose 13 percent to 199,660, matching analysts’ estimates. The automaker, based in Toyota City, Japan, saw U.S. truck and car deliveries advance 17 percent and 11 percent, respectively. Sales of the full-size Tundra pickup jumped 23 percent.

“For Toyota, truck sales continue to soar,” Bill Fay, Toyota division group vice president and general manager, said in a statement.

Nissan Motor Co. sales increased 18 percent, exceeding the 14 percent average of analysts’ estimates. The company’s car sales bucked the declining trend with a 24 percent gain as Nissan Versa deliveries jumped 46 percent. The Yokohama-based company reported mixed results on pickups: The compact Frontier was up 11 percent while the full-size Titan slid 7.9 percent.

Honda Motor Co.’s sales of Honda and Acura brand autos rose 1.1 percent last month to 132,456, the company said in separate Twitter posts. That was below an expected 3.3 percent increase.

Hyundai Motor Co. and Kia Motors Corp., affiliated South Korean automakers, reported a combined sales gain of 8 percent, topping an estimated 5.9 percent increase. Hyundai’s sales grew 4.4 percent to 66,107, while Kia’s jumped 13 percent to 53,676, the Seoul-based companies said in separate statements.

Strategic Incentives

GM, the nation’s largest automaker, reported sales of 254,076 in April. Deliveries of the Chevrolet Silverado pickup rose 8.5 percent while those of GMC Sierra trucks increased 21 percent. Both trucks were redesigned and began arriving in showrooms last year. Sales of GM’s large sport-utility vehicles, including the Chevrolet Tahoe, gained 22 percent, the company said in an e-mailed statement. Deliveries of GM’s Chevy Cruze small car slid 1.3 percent and the mid-size Malibu dropped 8.2 percent.

With GM’s recent introduction of heavy duty and full-sized SUVs, “we believe sales of these vehicles are finally hitting their stride and we project continued sales strength and market share gains,” Joseph Amaturo, an analyst with Buckingham Research Group, said in a note yesterday to investors.

GM said it used “strategic” discounts to boost sales of its Chevrolet Silverado and GMC Sierra pickups, aiming incentives on double-cabs and V-6 models where the company felt it was losing share to price competition. Incentives as a percentage of average transaction prices rose to 12.4 percent in April from 10.2 percent in the first quarter, GM said, citing data from J.D. Power & Associates. The company noted that its incentives on large SUVs and heavy duty trucks declined.

Truck Prices

Higher prices on those new trucks helped GM offset losses in the first quarter from the cost of recalling 7 million vehicles, including the 2.59 million with potentially faulty ignition switches that allowed the key to slip out of the “on” position, shutting off the engine and disabling air bags. First- quarter profit fell to $213 million from $1.18 billion a year ago. North American adjusted earnings before interest and taxes fell to $557 million from $1.4 billion.

Ford reported U.S. light-vehicle sales of 210,355 last month, the Dearborn, Michigan-based automaker said in a statement. Deliveries of the Ford Focus dropped 15 percent while F-Series pickups gained 7.4 percent. Ford said it trimmed discounts on its F-Series in April by $380 from a year earlier to $3,700 a truck.

Jeep SUVs

Deliveries of Chrysler’s outgoing 200 sedan plunged 66 percent, as the company’s car sales dropped 26 percent. Chrysler’s results were hurt by a 26 percent drop for the compact Dart. Ram pickup sales totaled 36,674.

“Strong consumer demand for our Jeep sport-utility vehicles and Ram pickup trucks continued in April,” Reid Bigland, Chrysler’s U.S. sales chief, said in the statement.

Dodge brand added 50 sales to 53,463 in April as gains by the Grand Caravan minivan and Journey SUV made up for declines for the Dart and outgoing Avenger. Fiat brand sales increased 10 percent to 4,298 deliveries.

The latest consumer confidence survey, which rose in April to a nine-month high, showed Americans are growing more upbeat about the economy as the labor market gains traction. Consumers were more optimistic about current conditions than at any time since July 2007 as smaller ranks of the unemployed, near-record stock prices and higher property values help bolster household finances.

The Thomson Reuters/University of Michigan final index of sentiment increased to 84.1 from a four-month low of 80 in March. The median projection in a Bloomberg survey of economists called for 83 after a preliminary April reading of 82.6.

--With assistance from Shin Pei in New York.