GM’s New Mantra: Give Us the Profits, You Keep the Market Share


Jul. 25 2016, Updated 11:06 a.m. ET

General Motors’ 2Q16 earnings

Previously, we explored how General Motors’ (GM) revenues from North America and Europe increased in 2Q16. At the same time, the company continued to struggle in South America due to the weak economic environment. Now, let’s look at GM’s new mantra of focusing on profitability.

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2Q16 margins

In 2Q16, GM’s gross margin expanded to 18.8% from 14.6% in the corresponding quarter of the previous year. The company reported EBITDA (earnings before interest, tax, depreciation, and amortization) of $5.6 billion with an EBITDA margin of 13.3%. This margin was also significantly higher than 9.1% in 2Q15.

Likewise, GM’s net profits more than doubled in 2Q16 to $2.9 billion with an expanded net profit margin of 6.8% from just 2.9% in 2Q15.

GM’s new mantra of profitability

In order to protect its margins, General Motors has been cutting its fleet sales to rental car companies for the last several quarters. It’s doing so primarily to utilize plant capacity to manufacture other more profitable vehicles for retail customers.

In the auto industry, fleet sales can be defined as wholesale vehicle sales to customers such as rental car companies, government departments, and private companies that use commercial vehicles. While fleet sales boost automakers’ revenues and market shares, they’re not as good for their profitability as retail sales. This is because margins and profitability from fleet sales tend to be lower than those of retail vehicle sales.

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Earlier this year, the company made it clear that it will continue this strategy in fiscal 2016, which should mean expanded margins. General Motors’ market share in multiple markets continued to decline in 2Q16, as we noted earlier in this series. However, the company seems to care only about profitability at the moment. Interestingly, GM’s new mantra of focusing only on profitability seems to be working well so far.

In addition, higher sales of pickup trucks and utility vehicles in the United States over sales of small cars have helped GM to expand its margins lately. Other automakers (FXD), including Ford Motor Company (F), Fiat Chrysler Automobiles (FCAU), and Toyota Motor Corporation (TM), are also benefiting from this trend.

Continue to the next part of this series to read about GM Financial Company’s performance in 2Q16.


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