GM Reports May Sales Decline; Ford Has Increase --2nd Update

By John D. Stoll and Adrienne Roberts Features Dow Jones Newswires

General Motors Co. reported a sales decline in May despite an extra selling day and Memorial Day clearance sales, as an abrupt decline in demand for high-margin pickup trucks added to concerns about the health of the auto industry.

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The auto maker reported a 1% drop in sales to 237,364 units. Sales of the GMC Sierra pickup truck were down 8.2% to 16,200 units, and sales of the GMC Canyon pickup dropped 26.3% to 2,477 units.

Also on Thursday, GM said it would cancel a production shift at its Warren, Mich., transmission factory in response to weakening demand for passenger cars, such as sedans.

Some other auto makers reported better sales for May than GM. Nissan Motor Co. reported a 3% increase in sales in May to 137,471 units, driven by continued demand for crossovers and SUVs.

Meanwhile, Ford Motor Co. reported an unexpected increase in sales. The auto maker's sales rose 2.3% in May to 240,250 units, with sales of its F-Series pickup truck up 12.8%.

The results come amid heightened focus on demand for pickup trucks, which are a primary generator of profits for Detroit and Japanese auto makers and a bellwether for economic health.

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When Ford F-150s, Chevrolet Silverados and other pickups are selling well, it is a sign that consumers are able to spend more for a new vehicle and that commercial buyers -- ranging from small-business owners to municipal fleet managers -- are investing in new equipment in response to economic optimism.

Pickup trucks are loaded with gear and routinely sell with sticker prices in excess of $40,000, or considerably more than the average vehicle sold in the U.S. Sales of light-duty pickup trucks have soared in recent years amid declining gasoline prices and job growth, now representing 16% of light-vehicle sales, according to Autodata Corp.

However, the segment fell in April, the first decline for pickups in 11 months. Unlike a prior decline that came as auto sales were tracking at a record pace and inventories remained relatively tight, pickup-truck softness comes amid a slowdown in the broader market and a sharp increase in unsold stock on dealer lots.

Further softness in May for the segment will heighten concern that has been growing for several months as the pace of the wider market loses steam.

Inventory of pickups is particularly acute, touching 97 days' supply as of the beginning of May, or a 12% increase in actual vehicles on dealer lots compared with the prior year, according to WardsAuto.com. That number is far above the industry norm for inventory and has helped fuel a price war that is emerging in the U.S. market.

Transaction prices are holding steady above $31,000, representing a historically high mark, according to JD Power estimates. But incentive spending touched a new May record last month, exceeding $3,650.

GM's cut back at the Warren, Mich., transmission plant affects less than half of the facility's roughly 600 employees. The reduction is tied to a broader job-cutting scheme that the No. 1 U.S. auto maker started rolling out earlier in 2017 at certain assembly plants.

GM and many of its revivals have recently announced or reiterated significant job and investment commitments in response to pressure from President Donald Trump related to U.S. manufacturing. In January, GM confirmed a $1 billion U.S. investment plan.

In May, overall auto sales are expected to have been relatively flat compared with the same month in 2016, but this year had an additional selling day. As a result, the closely watched seasonally-adjusted annual selling rate is expected to have tumbled to the mid-16-million unit range, or far below the 17.3-million annual pace set a year ago.

Through the first five months of 2017, auto sales have fallen slightly even as incentive spending heats up, indicating a string of two consecutive annual-sales records will be broken this year. Further production cuts are expected in coming months, a trend that will dent profits and heighten the likelihood of a prolonged sales plateau and potential pricing battle.

"Continued elevated incentives reflect the challenges of balancing record levels of inventory and are likely to remain elevated unless production is adjusted to meet consumer demand," said Deirdre Borrego, general manager of J.D. Power's automotive data and analytics.

Write to John D. Stoll at john.stoll@wsj.com and Adrienne Roberts at Adrienne.Roberts@wsj.com

General Motors Co. is limping into the highly-anticipated summer selling season, getting passed by Ford Motor Co. as the market's top seller in May and laying groundwork for more job cuts at its American factories.

GM, among the world's most profitable auto makers, has been scrambling to adjust production as the U.S. market plateaus. The adjustment is part of a discipline installed by chief executive Mary Barra after decades of stocking dealer lots with more cars and trucks than customer demand warranted.

GM sales are off 1% through five months compared with the same period in 2016 -- it has disclosed plans to lay off more than 4,000 workers since January.

Once known for flooding rental-car agencies with its cars and slapping generous discounts on even its most popular models, GM has retreated from profit-sapping fleet sales and shown restraint in incentive spending.

The strategy, however, comes with a price for GM. Market share has stagnated near historically-low levels, and the one-time global powerhouse risks eventually losing its crown as the top American auto maker.

Around noon on Thursday, GM shares were up about 2%, trading at $34.57 as investors were cheered by broader stability in the U.S. market. GM shares aren't trading considerably higher than the company $33 initial public offering price set in 2010, raising pressure on Ms. Barra following the abrupt firing of former Ford Chief Executive Mark Fields in May.

Mr. Fields struggled to compose a strategy for combating an onslaught of tech companies, including Alphabet Inc. and Tesla Inc., looking to displace Detroit companies as industry leaders. While Ms. Barra has made a series of high-dollar investments and product introductions as part of GM's response to Silicon Valley and enjoys backing from the company's board, she has also pulled GM out of several markets to ensure profit growth as the U.S. car market cools.

Broader demand for cars and trucks is expected to have been flat in May despite one extra selling day and a spate of Memorial Day deals.

Ford reported an unexpectedly-strong performance due largely to a steep increase in sales to fleet buyers, while Toyota Motor Co. and Fiat Chrysler Automobiles NV reported modest declines.

Honda Motor Co. and Nissan Motor Co. also reported sales increases.

GM has been hit by a two difficult forces. It had to pull back on production amid sharp decline in demand for the Chevrolet Malibu bread-and-butter sedan, the Cadillac CTS luxury car, and other passenger cars. At the same time, pickup sales -- the backbone of GM's high-margin truck business -- are slumping through May even as Ford's F-Series pickups and Chrysler's Ram pickups thrive.

GM's latest round of cuts are modest in number, but take place in a city that is central to one of the Michigan counties that played an outsize role in the 2016 election. GM's Warren, Mich., transmission plant will cut about 150 jobs, affecting temporary and unionized workers living in Macomb County communities where President Donald Trump's America First approach played well.

A spokesman noted GM's cuts in Warren, scheduled for late June, affect less than half the workforce at the factory, and are part of a broader plan to trim sedan capacity amid a continuing decline in the popularity of small cars and sedans. A sustained run of cheap prices at gasoline pumps and steady job growth have boosted the appeal of sport-utility vehicles, including a stable of models GM is in the process of updating.

Traditionally the top U.S. auto maker in terms of sales, GM has struggled to keep up with rivals in the pickup truck department. Sales of Chevy's Silverado and Colorado pickups, and sibling versions of the trucks sold by GMC, have slipped 5.6% in 2016.

Ford's best-selling F-Series lineup, meanwhile, is up 8.5% and Ram trucks increased 8% over the same period.

GM's weakness in the sector highlights a big concern for analysts. Pickup trucks are a primary generator of profits for auto makers and a bellwether for economic health.

Detroit's grip on this market has proven impenetrable: The three domestic companies own most of the segment's market share even after Japanese competitors repeatedly attempted to edge in with models like the Nissan Titan or Honda Ridgeline.

However, when any one of the domestic pickups struggle, it raises questions about willingness of consumers to spend more for a new vehicle and the appetite of commercial buyers -- ranging from small-business owners to municipal fleet managers -- to invest in new equipment in response to economic optimism.

Pickup trucks are loaded with gear and routinely sell with sticker prices in excess of $40,000, or considerably more than the average vehicle sold in the U.S. Sales of light-duty pickup trucks have soared in recent years amid declining gasoline prices and job growth, now representing 16% of light-vehicle sales, according to Autodata Corp.

However, the segment fell in April, the first decline for pickups in 11 months. Unlike a prior decline that came as auto sales were tracking at a record pace and inventories remained relatively tight, pickup-truck softness comes amid a slowdown in the broader market and a sharp increase in unsold stock on dealer lots.

Inventory of pickups has particularly acute, touching 97 days' supply as of the beginning of May, or a 12% increase in actual vehicles on dealer lots compared with the prior year, according to WardsAuto.com. That number is far above the industry norm for inventory and has helped fuel a price war that is emerging in the U.S. market.

Transaction prices are holding steady above $31,000, representing a historically high mark, according to JD Power estimates. But incentive spending touched a new May record last month, exceeding $3,650.

Write to John D. Stoll at john.stoll@wsj.com and Adrienne Roberts at Adrienne.Roberts@wsj.com

(END) Dow Jones Newswires

June 01, 2017 12:27 ET (16:27 GMT)