July 18, 2008
Shares in General Motors continue to be volatile. In the last week GM’s stock hit a low of $8.81/share and has rebounded back to $12.85 yesterday. At this point in time, GM has so little market value any amount of volume will move the stock. The market is also digesting GM’s June 3rdJuly 15th restructuring plans and their impact on the company. Interesting to note, during the last GM press conference the company gave a sneak speak of some of its soon to be released vehicles and upcoming product plans. GM's attempt at viral marketing may have worked as the renderings of the vehicles were captured from the press conference and published on the web. (The photos below were not officially released.) Now, how does this soon to be released product fit into the direction where the market it headed?
As GM presented last Tuesday, the US market is shifting back to cars (Figure 1) in a hurry as fuel prices rose. A year ago, traditional passenger cars accounted for 45% of the vehicles sold and they are almost 60%. Sales of trucks dropped sharply in the same period to 22% in May 2008. This is down from approximately 40% as recently as a year ago. The crossover vehicle segment has remained relatively stable as a percentage of the total market at 19%.
Figure 1: US Retail Product Mix
GM also showed it product plans and the vehicles that will be released now until 2010 (Figure 2). In 2009, the company will release four crossover utility vehicle including a large crossover later this year. Considering at this time, the crossover market is stable, GM could be strong in that segment. Three of the crossovers (Chevrolet Equinox, GMC Version of the Equinox and Chevrolet Traverse) could help GM grow in the segment as the Equinox replaces a good selling but aging model, and the Traverse and GMC version of the Equinox will be new additions to the portfolio. The next generation Equinox is shown below.
Cadillac and Saab crossovers (shown below) will be added to the portfolio. The SRX will replace the current slow selling model and the Saab 94x will be a new model for the brand.
None of these models alone can turnaround GM's current financial problems. However GM could have a strong showing in this market segment overall especially if fuel prices remain high and the product is competitive as the public shifts from large SUVs to more efficient crossovers.
Figure 2: GM New Product Launches
GM will also release a mixed bag of passenger cars between now and 2010. Shortly GM will release the upcoming Camaro and convertible and the Solstice coupe. Given the current fuel cost, I suspect Camaro sales will not be as robust as when the vehicle was approved for production. Personally I would not be surprised if sales are off 30% - 40% off initial estimates of 100k vehicles a year. I also fully expect sales to drop off the second year these vehicles are in production as the hype wears off the return of the Camaro. In any case the Camaro will be a new vehicle to the portfolio and should add sales. The Solstice on the other hand is a niche vehicle and may not add much to GM's bottom line.
Buick will soon replace the Lacrosse with a new vehicle built off GM's midsized Epsilon architecture (pictured below). This vehicle could help stabilize the brand in the midsize segment and reduce the brands dependence on fleet sales. If nothing else the quality of the sales should improve. Shortly thereafter, the company will release a wagon and coupe version of the Cadillac CTS. Both vehicles are expected to sell in low volume but will help fill out the Cadillac showroom and keep the brand on the publics radar. (Wagon shown below) The second generation CTS sedan has improved retail sales by 33% and increased the transaction price by $8,000 compared to the previous model according to GM data.
The two most important products GM will release in this time will be the replacements for the sub-compact Chevrolet Aveo and the new compact vehicle Chevrolet Cruze (below). Sister vehicles appear to be destined for the Pontiac brand as well. Assuming these vehicles are well executed, GM might actually hit the heart of the market with these two vehicles given fuel cost and economic slump in the US. It still remains questionable given GM's past efforts if the vehicles can be profitable. However given the sift to smaller passenger cars early data is showing as a whole, transaction prices are increasing as buyers opt for more expensive option packages. This could help GM make profits on smaller cars. This can help offset the reduced cash flow from the once highly profitable fullsize truck market.
Data presented by GM on Tuesday showed its recently launch Malibu sedan has increased its retail sales by 113%, improved the transaction price by $4,000 and increased the residual value by 11 points over the previous model. If this success can be duplicated with its newer small cars and the rest of the new product, the company may improve its bottom line. Based upon where the market is heading, GM may have the right product at the right time. However, the company still has a long way to go as it struggles in today's business climate.
For a more detailed overview of the product see AutoWeek.com
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