General Motors' Sales Dropped Last Month. Is That Bad News?

Chevy Silverado sales fell 5% last month. That sounds bad. But as with GM's overall sales results, it's not that simple. Image source: General Motors.

General Motors said on Tuesday that its U.S. sales fell 1.5% in February, a sharp contrast to the double-digit gains posted by both of GM's traditional Detroit rivals.

But it turns out that the story isn't quite that simple. GM attributed the decline to a sharp drop in fleet sales. Its retail sales in the U.S. rose 7% last month, and the General likely added to its recent gains in retail market share.

What worked for GM in FebruaryLike most of its rivals, GM is selling a whole lot of SUVs, particularly car-based crossover SUVs. But surprisingly, sales of some of GM's most popular SUVs dropped last month: The Chevrolet Equinox (down 8.7%), Traverse (down 5.6%), Tahoe (down 12.4%), and Suburban (down 19.2%) all declined year over year.

That raises a question -- but the answer might be found in the sales totals at GM's more upscale brands. The Tahoe and Suburban, for instance, share a (very busy) assembly line with the premium GMC Yukon and Yukon XL, and the posh Cadillac Escalade and Escalade ESV. All four posted solid sales gains last month, suggesting that GM might be shifting production toward its higher-profit models, leaving its Chevy dealers with tighter supplies. That's a smart move from a profit perspective, even if it means giving up some Chevy sales.

Chevy Suburban sales fell last month -- but those of its plusher sibling, the GMC Yukon XL, jumped 11%. Image source: General Motors.

GM also noted that retail sales of the Suburban, Tahoe, and Traverse were all up last month. That's probably a similar story, with GM shifting limited supplies toward more profitable retail sales at the expense of fleet sales.

GM is also doing better than some rivals with sales of its sedans. Its all-new 2016 Malibu is off to an impressive start, with sales up 53% last month. In what has been a very tough market for big sedans, the full-size Chevy Impala managed a small (1%) year-over-year increase, as did the well-regarded (but pricey) Cadillac CTS (up 1.6%).

What about pickups? At first glance, GM's full-size pickups had a tough month. Rivals Ford and Fiat Chrysler both managed solid year-over-year gains in full-size pickup sales. But sales of the Chevy Silverado fell 5%, while sales of the upscale GMC Sierra were roughly flat (up just 0.3%).

What's the story? A year ago, when Ford was in the midst of changing over its factories to build its all-new-for-2015 F-150, its supplies of pickups were very tight -- and GM took full and enthusiastic advantage. That made for a tough year-over-year comparison. But total sales of 58,338 compares very well with the 50,816 full-size pickups that GM sold two years ago, in February 2014.

And incentives?Citing J.D. Power data, GM said that its per-vehicle spending on incentives was 12.4% of its average transaction price last month. That's a bit high: The industry average was 11.1%, it said. But, it noted, it has been selling down the last of its outgoing-model Chevrolet Cruze and Malibu sedans to make way for the new models. It said its spending on pickup-truck incentives was down year over year.

GM's average transaction prices (after incentives) were up to $34,200 last month, a jump of about $680 from January.

Why GM is reducing (some kinds of) fleet salesUnder CEO Mary Barra, GM has made a big point of focusing on retail sales over some kinds of fleet sales. Traditionally, sales to rental-car fleets made up a significant portion of GM's overall U.S. sales. But rental-fleet sales tend to carry low profit margins, and the resale of all of those rental-fleet cars on the used-car market a couple of years later hurts the resale value (or residual value) of the GM models in question. That sharp depreciation makes it harder for GM to offer competitive leasing deals.

GM may have cut rental-car sales, but the all-new and much-improved 2016 Chevrolet Malibu doesn't need fleet sales to shine. Retail sales were up 87% last month. Image source: General Motors.

Long story short, GM has been cutting back on its sales to rental fleets. It said it reduced its rental-fleet deliveries by about 16,500 units in February. Had those been added into GM's overall sales total, its U.S. sales would have been up about 6% last month. GM expects rental-fleet sales to account for about 20% of its U.S. sales in 2016, down from its historical 22% to 24% range.

But take note: Some kinds of fleet sales are goodNote that some kinds of fleet sales are more valued than others. Sales of (usually) trucks to commercial-vehicle fleets are considered to be good, profitable business, and GM and Ford battle hard for it. Sales to government fleets (think police cars, highway-department trucks, and the like) are also valued, and very competitive.

GM said that its sales to commercial fleets rose 7% in February, its 28th consecutive monthly gain. Its government-fleet sales rose 14%.

The upshot: Not a bad month, from a shareholder's perspectiveOf course, GM shareholders (full disclosure: I'm one) like to see fat year-over-year sales gains in the U.S. every month. It's disappointing when we don't. But looking a little deeper, there is a lot to like in these results.

Several of GM's key factories are maxed out, or close, meaning that it can't easily increase supplies of some models. With that in mind, it's clear that GM is following a disciplined approach to maximizing the profitability of the vehicles it can build.

The article General Motors' Sales Dropped Last Month. Is That Bad News? originally appeared on Fool.com.

John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends General Motors. 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.