GM won’t follow Ford, FCA on sedan cuts — yet

Nora Naughton
The Detroit News

America’s market for traditional cars may be dying, but General Motors Co. appears unwilling to join the funeral dirge — for now.

Even as rival Ford Motor Co. moved this week to pare all but two sedans from its North American lineup, GM’s top brass says it still sees potential in a market shifting steadily to pickups, SUVs and crossovers of all sizes.

“When you have less competition, in any area, it makes it potentially more attractive,” GM’s Chief Financial Officer Chuck Stevens said Thursday. “We’re focused on executing our plan and producing great products and making sure supply and demand is aligned and that’s how you optimize the profit with strong brands.”

Sales numbers show a steady exodus from traditional cars to trucks and SUVs, a trend accelerated by the emergence of practical and fuel-efficient crossovers that often share the powertrains of cars. Toyota Motor Corp., Honda Motor Co. and Volkswagen AG, among others, remain deeply rooted in the U.S. car market with such venerable nameplates as Camry, Corolla, Civic, Accord and Jetta.

Meanwhile, Detroit is doubling down on bigger, higher-margin vehicles.

Ford used its first quarter earnings report Wednesday to say it is slashing its sedan and subcompact cars, leaving only the Mustang and an all-new Focus Active compact as it embarks on a two-year effort to beef up its SUV and crossover lineup.

Ford’s plan to largely exit the passenger car market follows Fiat Chrysler Automobiles NV’s moves at least two years ago to abandon the U.S. small-car market to focus on SUVs, particularly Jeep. GM appears to be taking a more measured approach: Despite the smaller margins in the car market, automakers sold some 2 million sedans in the U.S. last year.

“We think there’s an opportunity (in sedans), because we’ve made the investments. We need to deploy little-to-no capital as we move forward,” GM CEO Mary Barra said on a Thursday conference call with investors. “We have worked on each of our car lines over the last year to make sure that we’re driving efficiencies across all areas of the business that supports those, so I think what you’re going to see us do is very efficiently play in a segment that although is declining, there still is opportunity.”

Efficiencies are important if GM wants to continue to play in the sedan market, said Karl Brauer, an automotive analyst for Cox Automotive. “If GM can be smart about platform-sharing and leveraging global demand,” he said, “there’s no reason they can’t be the domestic foldout for sedans the way Chrysler is for minivans now.”

GM hasn’t confirmed reports that it plans to ax the Chevrolet Sonic small car and Impala sedan. But analysts say some cars likely will be dropped because the U.S. market doesn’t generate the demand to support a seven-vehicle sedan portfolio like the one Chevrolet currently boasts.

“There has been a dramatic shift away from sedans for the last four or five years that I don’t think anyone saw coming,” Brauer said.

GM reported 8-percent margins in North America from a $2.2 billion operating profit in the first quarter of 2018, down 37 percent from the same quarter in 2017. It’s a hit GM expected to take during a planned downtime to prepare for the launches of its full-sized Chevrolet Silverado and GMC Sierra pickups later in the year.

The bump from these higher-margin trucks is expected to help GM deliver its fourth-straight year of 10-percent full-year margins on its operating profits, bettering its pre-tax margins of 7.2 percent in the first quarter.

Ford coupled its announcement of a $1.7 billion first-quarter profit with news of further cost cuts planned through 2022. The automaker will prune its vehicle lineup of sedans and subcompact cars to just two cars, and cut $25.5 billion in operating costs by 2022.

The Dearborn-based automaker also hopes to achieve a better operating margin by then, too. Ford booked losses in the first quarter in South America, in the Middle East and Africa, in Asia Pacific, and in its new mobility segment, which lost $102 million. Profits in North America and Europe helped deliver a 4.4 percent profit margin across the company’s automotive segment. Ford’s North American business unit saw a 7.8 percent margin.

The Blue Oval and GM are both targets for FCA boss Sergio Marchionne — whose North American first-quarter earnings totaled nearly $1.5 billion and margins of 7.4 percent.

“It was my sincere hope that (FCA would surpass Ford and GM’s margins) on my watch,” he told analysts on a conference call. “If it doesn’t happen on my watch in ’18, I don’t have a single doubt that my successor will be able to whack the crap out of both of them. The machine is ready to do it.”

Automotive reporter Ian Thibodeau contributed to this report