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GM and Ford Thrive With Opposite Strategies

12K views 154 replies 31 participants last post by  jpd80 
#1 ·
General Motors has reduced its sales to rental car companies recently in order to bolster its profit margin, while Ford has not. Yet both automakers are posting very strong results.

Adam Levine-Weinberg
Jul 26, 2016 at 12:20PM
On the surface, General Motors (NYSE:GM) and Ford Motor (NYSE:F) have gone in opposite directions in the critical U.S. market this year. Ford has posted strong sales all year, with deliveries up 5% year over year through the end of June. Its growth was driven by the Ford F-150 pickup, commercial vans, and Ford's popular lineup of SUVs and crossovers.Meanwhile, General Motors has delivered significantly fewer vehicles in the U.S. this year than it did in the first half of 2015, punctuated by an 18% decline in May. This was driven by a strategic decision to reduce sales to rental car companies.

While GM and Ford have adopted opposite strategies this year -- rental car sales are up year to date at Ford -- both automakers have been extremely successful. This was highlighted by GM's record Q2 adjusted operating income of $3.9 billion.
GM silences the critics

Many auto industry pundits have expressed concerns about GM's sales declines and falling market share in the U.S. However, GM's retail deliveries actually increased 1.3% year over year in the first half of 2016. The vast majority of the total sales decline can be attributed to low-margin daily rental fleet sales. As a result, General Motors is posting extremely strong margins in North America. In Q2, its adjusted segment operating margin was a stellar 12.1%, up from 10.5% a year earlier and 8.7% in Q1. Over the past four quarters, GM has averaged a 10.7% adjusted operating margin in North America, comfortably above its 10% target.
Ford is in good shape, too

Thus, GM's strategy of reducing sales to rental car fleets appears to be paying off. However, Ford is also thriving, even as it continues to sell a large number of vehicles to rental car companies.

Leading up to Ford's Q1 earnings report, some analysts -- including myself, to some extent -- were concerned that high sales to the daily rental industry could crimp Ford's profit margin. Instead, Ford's North American operating margin reached 12.9% in Q1, up by 5.1 percentage points from the first quarter of 2015.

While there was undoubtedly some margin pressure from rental car sales during Q1, Ford benefited from very strong sales of its most profitable vehicles, especially the F-150.

That bodes well for Ford's upcoming Q2 earnings report. While sales growth has cooled a bit for Ford's crossovers, SUVs, and commercial vans, pickup truck sales remain red-hot. In Q2, Ford averaged monthly sales of nearly 70,000 F-Series trucks in the U.S., posting sales gains of 13%, 9%, and 29% in April, May, and June, respectively.
See complete article at link
 
#12 · (Edited)
So then the question is, who gets hurt the most when gas prices climb or the economy softens?


I now who you will answer with.

Yet, all it takes is a small uptick in gas prices and we are looking at which company has a better small vehicle portfolio. A lot of GM investments have been to make the car portfolio better and it's shown.

It's not all about market share.
GM's cars are fresher, today. What about utilities, and trucks and vans? You can argue this one every which-way, Focus is old, Cruze is new, if the market tanks and both companies are selling them for $15,000 who is hurt more, the car that is already amortized or the one that is just ramping up production? In a down-turn, pricing will get downward pressure, new and/or more desirable vehicles will go down slower, the others, faster and farther. The economy is pretty strong, gas is pretty cheap and GM's CUV's couldn't be older.


When it comes to large trucks and Utilities, Ford and GM are pretty much equally exposed
to any future down turn and if anything, Ford has a broader base with those higher fleet sales
percentages. Remember that it's retail sales that come off the boil first, not fleets.

While the market may have peaked, that is a long way from going into rapid decline.
There's still a lot of money to be made in the next few years and the bulk of that
will come from those large Truck sales and from Utilities - cars not so much.
"Diversify your portfolio" on one hand it guarantees some damage, on the other hand it minimizes it............
 
#3 ·
I will be interested to see which strategy plays out better when we hit the next recession. Right now we have booming truck sales making the day for both GM and Ford, the real question is who has the better plan. I suspect these fleet sales GM gave up and Ford took (possibly, we don't know that, maybe Toyota has some of them) have very minimal impact on the bottom line for either company.

I think the real answer is stop paying attention to these low profit rental sales and start looking at what both companies are doing to develop other profit streams, such as their luxury lines.
 
#5 ·
I will be interest to see which strategy plays out better when we hit the next recession. Right now we have booming truck sales making the day for both GM and Ford, the real question is who has the better plan. I suspect these fleet sales GM gave up and Ford took (possibly, we don't know that, maybe Toyota has some of them) have very minimal impact on the bottom line for either company.

I think the real answer is stop paying attention to these low profit rental sales and start looking at what both companies are doing to develop other profit streams, such as their luxury lines.
I fly regularly for work and I can tell you it's the Koreans that have taken up the slack in rental car deliveries...
 
#7 ·
When it comes to large trucks and Utilities, Ford and GM are pretty much equally exposed
to any future down turn and if anything, Ford has a broader base with those higher fleet sales
percentages. Remember that it's retail sales that come off the boil first, not fleets.

While the market may have peaked, that is a long way from going into rapid decline.
There's still a lot of money to be made in the next few years and the bulk of that
will come from those large Truck sales and from Utilities - cars not so much.
 
#8 ·
When it comes to large trucks and Utilities, Ford and GM are pretty much equally exposed
to any future down turn and if anything, Ford has a broader base with those higher fleet sales
percentages. Remember that it's retail sales that come off the boil first, not fleets.

While the market may have peaked, that is a long way from going into rapid decline.
There's still a lot of money to be made in the next few years and the bulk of that
will come from those large Truck sales and from Utilities - cars not so much.
Now, I don't remember that narrative being played out during the middle of the recession. Stories of companies putting off large fleet orders and stretching out their current fleets was the norm.

As for the rest, its pure speculation. The market has had a pretty good long run and is due for a correction here soon. How big of one remains to be seen.
 
#9 ·
You need to look at a normal recession................... not THE GREAT RECESSION, which was anything but normal.

How about, they are both doing great, and are both making great money, and are both taking advantage of the current buying market. :D

It is always funny on enthusiast sites, as it seems like if one company does things this way, and the other does them that way, but they still both do great................. in the eyes of the fans, one or the other is absolutely wrong, and the other is absolutely right.

Silly enthusiasts.
 
#11 ·
And, if Ford puts out great financials this week, will the "idiots" STFU about increased fleet sales??

I guess I am a semi-idiot, as I do know that at some point, dropping marketshare will have a very negative effect. Just as, at some point, too many fleet sales can do the same. However, if we can agree that GM is smart in their path.............. which maybe says something about the way they have positioned fleet sales in the past................. then can we also say that Ford is smart in their path, as it looks like they have taken a bit different path in how they position their fleet sales??
 
#31 ·
It's all about balance isn't it..

All that good work done by Ford a few years back is now paying off,
there's no way you can compete in all fleet business without controlling
those internal costs. Ford is so strong in commercial fleet sales because
it now has costs under control in its trucks and vans and can go after those
customers more aggressively.
 
#13 ·
Gloria, I've always applauded Ford on it's TRUE fleet sales which include the Transit vans and obviously the F150. Those two vehicles make up a lot of Ford's fleet percentage and the Transit move was pure genius and I've loved them since they were introduced. Now, when we get into vehicles that aren't typically considered fleet like the Focus, Fusion and Mustang it's a different story.

As for the other idiots who talk about fleet sales over and over again, I've got them blocked. It makes for much easier reading. ;D

Ed, are you really talking about how old the CUVs are when you know what's around the corner? Sadness that you are trying to even start that argument.
 
#27 ·
"Right around the corner" like all the gaps in the Cadillac SUV line, that does not good for present day.........

Gas has been cheap just shy of 2 years, or are you going to refute that too? Stop trying to refute facts.......




One of the takeaways I get from this whole discussion is that GM has higher ATP's but lower gross margins. What that indicates is GM has a higher cost structure (less efficient). If GM has higher ATP's, lower margins and lower profits, they will not be able to compete in markets such as fleet and daily rental. Fleet and daily rental typically have lower transaction prices and so GM loses money chasing those markets.
Exactly!


Which is why I suspected for some time that GM had higher internal costs than Ford,
it simply means they have to shift business to where it's more profitable, namely retail.
So what happens when gas prices rise and the economy softens; a push towards fleet sales to keep volume up?


I don't think thats the only reason. I think another factor is that GM has 2 new platforms that have not amoritized yet (Alpha and Omega), vs Ford's platforms are relatively mature (new F150 platform is much further ahead than either of Cadillac's).
They'll never amortize at the current sales rate.


Under control?? I think you missed something in the last quarter reports. GM is improving at a highly dramatic rate and all you can babble about is bloated cost structure?


Get it straight. For years you, yes you lover of fool.com, has cried foul of GM selling too much fleet. Now, tables have turned and the are making record money and your still pissed? Come on.


Add back in the "lost" fleet sales and GM is doing perfectly fine market share wise. Shut up about it. They are making tons of money not chasing market share. Choose one.
Incremental sales, at a profit are bad how?



I just saw a brand new SRX and Acadia today, they're less than a year old design, which I guess is stale....?

New Envision, Encore is still newish and the MCE either just hit the streets or will soon. Their full-size SUVs are 2015s.

They do have some old CUVs, but half of them are new and the other half is less than 18 months away.
The Lambda and Theta's; 80-90% of sales, they are old today, they were old last year.
 
#14 · (Edited)
Go back to 2007 when gas prices shot up, the first thing that happened was that large truck sales
slowed right up as the buyers fled the lifestyle truck and Utility market, commercial sales then
began to follow approximately six months after as the full financial crisis worsened..

At that time, F Series came down to around 30K/month and Ford was thinking that was permanent die back
which was also the reason why Expedition and Navigator didn't get significant upgrades in 2010 with F150.

So before the GFC hit, the Retail market for large trucks and Utes was already in steep decline
as people stayed out of the market instead of downsizing as most companies expected.

FWIW, we're not in the same situation as then but also, as fuel prices begin to come back up
buyers may not necessarily flee the large truck and Ute market as before due to today's vehicles
having much better fuel economy. While it's prudent to have a downsizing contingency plan,
it may be that the market makes those predictions look hasty and rash.

Let's see if Ford is true to its word of daily rentals being seasonal by reducing those sales in
the second half of the year and bringing those annual percentages back to acceptable levels.

The main reason I see Ford entertaining that much rental business in the first half of the year
is to keep plant production constant without the need to idle plants or rebalance production.


ED was right when he said that,
"Diversify your portfolio" on one hand it guarantees some damage,
on the other hand it minimizes it............
I think daily rentals are something that Ford does because it suits their end purposes
with buffering production and suppliers not just the ROI those sales may or may not bring in....
 
#18 ·
First of all Kudos to both companies. Can't say that enough.

I think rental sales work better with Ford because the F series offsets the margin lost. GM still hasn't been able to hit the same eye watering price points (thank God) as ford does for its trucks.

I do value retail sales more because you have to earn those sales with the customers. Rental fleets will take what ever you throw at them (remember the Cobalt)
 
#19 ·
One of the takeaways I get from this whole discussion is that GM has higher ATP's but lower gross margins. What that indicates is GM has a higher cost structure (less efficient). If GM has higher ATP's, lower margins and lower profits, they will not be able to compete in markets such as fleet and daily rental. Fleet and daily rental typically have lower transaction prices and so GM loses money chasing those markets.
 
#20 ·
Which is why GM is partnering with Isuzu and Navistar for their medium duty truck business.

The 'old GM' couldn't profitably produce them on their own, and apparently the 'new GM' can't either.
 
#22 ·
That is only a temporary solution. It is a fools errand to run from markets that are more competitive because you have a bloated cost structure (GM). GM needs to get their bureaucratic, bloated cost and management style under control. Soon, others will see the higher prices and margins in the retail and luxury markets and eat GM's lunch there as well. It may already be happening. The evidence is GM market share continues to shrink.
 
#33 ·
You'd think some of the pundits here will never be happy no matter how GM performs either sales wise or financial wise. Can the company perform better? Yes. Can sales be better? Yes.

Yet, here we are a week later after record profits and climbing margins the same pundits come to piss in your face and tell you it's raining.
 
#35 ·
Pundits............... and "piss in your face?"

Come on, you are better than some of the stuff you have been posting lately. Ignore the people that piss you off. Really, it is that simple. You have good things to say. You are normally relatively balanced. Lately, you are just plain angry. There are posters that I think post ridiculous things sometimes................. and I shake my head and move on. It just isn't worth it. When you post inflammatory stuff, people post inflammatory stuff in response.

I will bow out again. It doesn't seem that there can be a discussion here that involves Ford and GM without it turning stupid.
 
#38 ·
I think GM is missing the boat with their decision to decrease fleet sales. I drove company cars for 31+ years and in the early years of the 70s, we had a choice of almost all of the American brands. Most of the company cars I chose were GM products until my Celebrity constantly broke down and left me stranded several times. Due to reliability issues of the 80s and a deal with Ford, they went exclusively with Ford products since the 90s and it continues through today.

Our replacement schedule was determined by age and miles and it didn't depend on the economy. The cars were leased (for tax advantages) and a minor adjustment in lease payments didn't change the schedule. The sales were constant regardless of the economy and they continued when sales were down in the retail sector.
 
#51 ·
I am not sure you are seeing the picture in it's entirety though.

In the past, Over Capacity, forced GM's Fleet Flooding response. GM had to keep the plants operating and producing in order to Not spend money to build Nothing. Even if this meant selling the end product for a loss, the loss was still smaller than not producing a product at all.

So through Restructuring, the Capacity has been reduced. Now unless the Plants are running at 80-95% Capacity, GM is leaving money on the table by looking the other way at Fleet Business. Yes even Rentals.

The big difference I see is that Ford is in the Rental Game, because they are still making a profit at it, Not because they have to be to get rid of the supply. That is the Big difference now verse then.
 
#62 ·
GM has the newer car portfolio. GM has the better electric car portfolio. GM has competitive trucks that didn't cost a gazillion dollars to create. GM has a true luxury brand. And GM has both a sports car and a ponycar that are among the best driving cars on the planet.

Add that all to their aggressive increase in profits and the sales lead is just icing on the cake. I'll reserve final judgement until Ford's quarterly numbers are released, but right now it looks like Mary Barra's the queen of the world.
 
#66 · (Edited)
SierraGS wasn't talking about performance......




GM has the newer car portfolio. GM has the better electric car portfolio. GM has competitive trucks that didn't cost a gazillion dollars to create. GM has a true luxury brand. And GM has both a sports car and a ponycar that are among the best driving cars on the planet.

Add that all to their aggressive increase in profits and the sales lead is just icing on the cake. I'll reserve final judgement until Ford's quarterly numbers are released, but right now it looks like Mary Barra's the queen of the world.
Seems like reserving judgement is a bit like,
There's a lot to be pleased about with GM's most recent result and that line up
you just mentioned means that those higher profit levels will continue.

While we're puffing out chests with pride

I'm looking at:
GM's Q2 result - $3.9 Billion, $2.9 Billion after tax (higher Retail Percentage)
and then at:
Ford's Q1 result - - $3.8 Billion, $2.5 Billion after tax (higher Fleet Percentage)

and wondering what Ford will bring for Q2.........
 
#70 ·
GM and Ford may be thriving, but I think we can clearly state that it has little or nothing to do with their opposing rental car strategies, since rental car sales are an extremely low margin business either way.

Might as well use the headline, "GM and Ford thrive even though Chrysler comes first alphabetically!"
 
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