GM Aims to Turn Around Recent Market Share Losses in 2017
January 10 2017 - 11:04AM
Dow Jones News
By Mike Colias
General Motors Co. aims to end three years of market share
declines in 2017 even as the company continues to cut back on sales
to one of the auto industry's most loyal customers.
The Detroit auto maker has sharply reduced sales to daily-rental
companies in recent years because those sales traditionally return
lower margins, dent resale values and hurt overall brand image.
This strategy has taken a toll on overall market share, with GM
finishing with 17.3% of the U.S. market last year, compared with
17.6% in 2015.
A top executive said GM will reduce rental-car sales in 2017 by
as much as an additional 50,000 vehicles compared with 2016 sales,
or 15% of the rental-fleet total, but it aims to tally market-share
gains.
The company's sales strategy will be in focus Tuesday as the
auto maker presents part of its 2017 business plan to analysts at
an investor conference taking place alongside Detroit's annual auto
show.
While GM's position continues to sink further below the dominant
perch it long held in the U.S., GM's North America Chief Alan Batey
said the company is increasing retail sales, or deliveries to
individual buyers at dealerships. "We've been able to take the
vehicles that we would have been selling as rentals and switch them
to retail," Mr. Batey said in an interview on the sidelines of the
auto show.
"That grows profitability."
Mr. Batey said GM should be able to offset the reduced
rental-car volumes this year because it is rolling out a number of
redesigned crossover SUVs, which are a hot part of the market.
Detroit's auto makers historically have leaned on the rental-car
business more heavily than Asian competitors. Rather than cutting
production when demand from individual buyers cools -- which crimps
revenue and potentially leads to cash outflows related to plant
shutdowns -- GM often would sell large pools of cars to rental
companies.
That strategy eventually leads to higher numbers of used cars
returning to the market at depressed prices, which reduces resale
values and makes it more costly for auto makers to offer attractive
lease deals. GM curtailed excessive rental sales in the years
following its 2009 bankruptcy but redoubled its effort in the last
few years under GM Chief Executive Mary Barra.
Rentals accounted for 10.7% of GM's overall sales in 2016, down
from 15.3% in 2014.
The pullback on rentals "shows evidence of GM going after
more-profitable segments" of the market, RBC Capital analyst Joseph
Spak wrote in an October research note.
But GM's strategy could be tested by a continued slowdown in
consumer demand for passenger cars, analysts say. Diverting more
Chevrolet Cruze and Malibu models to rental lots could help avoid
trimming production.
Mr. Batey said doing that would be reverting to bad habits.
"There is absolutely no temptation from this leadership team to
say 'OK, let's go back to our old ways and dump vehicles into
rental-car fleets," Mr. Batey said. "We want to build these
brands."
(END) Dow Jones Newswires
January 10, 2017 11:49 ET (16:49 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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