Selling More Cars Hasn’t Been the Best Move for GM
General Motors is one of the biggest automobile manufacturers in the world. Only this February, it has sold 237,388 units, which is 4% greater than February 2016. GM, in one of their recent reports, also states that their retails sales have also increased. So we do know that the automaker is turning up great numbers in terms of unit sales, and it certainly did so in 2016 as well, but how is that turning out for the company in terms of profitability?
To be honest, not very good! Greater unit sales have not been translating well into profitability. General Motors revived a couple of its top-selling automobiles with a not-so-good quality. This was blended with a couple of heavy-duty SUVs and crossovers, a mix that sold well in the market.
The Unfavorable Mix
GM continued on the path of an unfavorable mix. This is a major part of the reason why, despite great sales, the profit margins dropped drastically for the automobile giant. The company even went on to state that it was due to the volume production of cars like the Cruze, Spark, and Malibu that seized potential profits. These mid-range cars do not yield much profit for the company, yet bring great sales.
Demand and Supply
To elevate the issue, the gas prices went up. This caused a dent in the large SUV and the heavy duty truck segments of the company. These were the segments that were the major drivers of the profits, especially in the American market. With the rise in gas prices, a major chunk of the GM customers parked their trucks and SUVs and came down to smaller cars like Spark and Cruze. What boggled the marketers was that a lot of people turned up to buy the smaller line of vehicles. This even had Chevrolet Malibu experience its greatest year in the market since 1980.
In a nutshell, GM started selling more for less which tampered the hyped profit margins of the company. Things further went out of hand when even the small-margin car—Chevrolet Cruze—lost its touch in the market. To comprehend the adversity of the fact, GM laid off 1,200 workers in Ohio! It wasn’t long before you could see Cruze available at every other dealership, with little to no demand.
The Financial Hiccup
It is for sure that the reason why General Motors had to face a financial hiccup was because it started focusing on quantity over quality. At one point, the company started to churn out different cars with different engines and transmissions, without taking into regard the demand that was in place.
On the brighter side, the American automaker learned from its mistakes and turned into the right direction without wasting more time and losing more money. It then produced top-quality SUVs and trucks with engines that boast power and precision. The quick response, the professional practice, and the sheer effort to maximize profit margins led the company to a record $12 billion earnings from the North American region in 2016.
Whether you drive a GM automobile or any other, engine replacements tend to be necessary after a few years of use. If you are looking forward to one, contact EngineWorld. We import top-grade engines from domestic and international manufacturers. For further information or to get a top-grade engine for your car, simply dial (800) 903 4430 and get in touch with us.
Sources
http://autoweek.com/article/car-news/why-selling-more-cars-bad-news-gm
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