inventory-squeeze-lifts-gm's-bottom-line

Inventory squeeze lifts GM's bottom line

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DETROIT — General Motors dealers ended 2020 with about one-third fewer vehicles on their lots than after the UAW strike a year earlier. But in the fourth quarter of 2020, GM and its dealers cashed in.

The automaker swung from a loss that it had largely blamed on the 40-day strike to a $2.8 billion profit last quarter, and its North American earnings multiplied roughly tenfold. The results show that GM can rake in big bucks even with tight inventory — so long as it’s not the only company scrambling to keep up with demand.

“In 2019 Q4, GM was really the only one with the supply constraint. If you’re Ford, you could take advantage of that and potentially do even better,” said Tyson Jominy, vice president of data and analytics at J.D. Power. “This past Q4, in 2020, everyone was suffering the original supply shock from lack of coronavirus production.”

GM’s full-year profit declined 4.5 percent to $6.4 billion, but rising sales and robust pricing in the second half overcame the disastrous early months of the pandemic. The automaker is projecting even higher earnings in 2021, despite the inventory strain and a global shortage of microchips that has forced several plants offline for the next month.

U.S. dealer inventory was about 411,000 vehicles at the end of 2020, GM said. That was down from about 616,000 at the end of the prior year and even less than the 444,000 on hand at midyear, after an eight-week production shutdown at the start of the pandemic.

Executives say the health crisis forced GM to be innovative and focus on high-margin pickups and

SUVs. GM prioritized its fastest-turning, most profitable vehicles and condensed the number of options available on some models to streamline the build process.

“The pandemic has been a catalyst for finding new and better ways to work while strengthening our resolve to win,” CEO Mary Barra told analysts last week.

GM’s fourth-quarter U.S. sales rose 4.8 percent from a year earlier, compared with an industrywide decline of 2.4 percent, according to the Automotive News Research & Data Center.

The rollout of GM’s redesigned full-size SUVs and low incentive spending in the latter part of the year boosted average transaction prices. Incentives fell 6.9 percent from a year earlier, and GM’s average transaction price rose 6 percent, according to TrueCar.

“They got the double hit of better volume and better pricing than most others,” Jominy said.

“They had a blockbuster Q4 that we could see coming from a long way out.”

Now, with the microchip shortage squeezing output, GM executives said it had less than a five-day supply of some top-selling vehicles, including the Cadillac Escalade and the GMC Sierra heavy-duty pickup.

The automaker last week extended downtime at three assembly plants because of the chip shortage until at least mid-March and said it will delay shipping vehicles at two others. GM plans to divert its chip supplies to plants that build full-size SUVs and pickups to keep them running at full capacity.

GM said it expects $10 billion to $11 billion in adjusted earnings before taxes in 2021, even after a $1.5 billion to $2 billion hit from the chip shortage.

The automaker gained half a point of U.S. share last year to end 2020 with 17.3 percent of the market. Its share was 18.3 percent in the fourth quarter, a three-year high.

“When everyone doesn’t have inventory, it was easier to do better,” Jominy said. “Everyone had fewer incentives. Transaction prices are through the roof, and consumers are buying up everything they can.”

Duncan Aldred, vice president of global Buick-GMC, told Automotive News last week that his brands are unlikely to reach pre-COVID-19 or pre-strike inventory levels this year, but he still expects to grow market share and profitability.

Many dealers are now getting buyers lined up even before vehicles arrive on the lot, Aldred said.

“That’s just a win-win for everybody,” he said. “The stock turns quickly, the dealer can make more money and the customer is getting a fresh vehicle.”