With gas prices hovering over $3 per gallon General Motors' (GM) improved financial success driven by its new lineup of large SUVs earlier this year is hitting a speed bump as inventories are rising and CEO Rick Wagoner has said GM will slow production in the second half. This hurts GM's bottom-line because of the higher profit margin of SUVs. GM has argued its large SUVs would do well in light of high gas prices because they are more fuel efficient than rivals' models. In fact, despite a 22% decrease in SUV sales overall in the U.S. market through the first-half of the year, GM has experienced a surge in market share in various sub-segments of the full-size SUV market. Wagoner said SUV production lines won't be shut down but that GM plans to curtail "some" overtime and 'introduce other products into the production mix.' Regarding discussions with Nissan (OTCPK:NSANY) and Renault, Wagoner said, "99.9%" of 'GM employees are working on things unrelated to a potential alliance." And he said 'he isn't currently actively involved in the effort." Lastly, Wagoner said GM will be bringing back the Camaro in what appears to be an attempt to follow the success of Ford's (F) Mustang Coupe.
Comment: Granted GM has had success this year in its large SUV segment, it is clearly not sustainable. It begs the question why U.S. auto manufacturers are so slow to adapt to changes in consumer tastes and the competitive business environment. A must-read is John Bethel's submission: "Forbes' Jerry Flint: Product, Not Costs, Are the Real Problem With GM and Ford." And just to prove how lower sales of SUVs and larger vehicles can hurt, even Toyota commented in its latest earnings announcement that despite record sales and earnings, margins are starting to be hurt by demand for smaller cars. That's a double whammy for GM.
On the topic of a three-way alliance between GM and Nissan-Renault, I commented in a summary of Nissan's quarterly earnings that a no-deal would not have much effect on Nissan's share price. The same can probably be said about GM, especially if its shares don't get hit for Wagoner's latest comments on having to cut back on large SUV production. Also see Bethel's, "Going, Going, Ghosn? GM-Nissan-Renault Merger Seeming Increasingly Unlikely."