General Motors (GM, Financial) expects U.S. light vehicles sales SAAR (seasonally adjusted annual rate) to be 17 million units, down from the previously expected 17.55 million the company announced during an investor call earlier this week.
Despite the announcement of weaker sales moving forward, the market seems to have taken the positives from the announcement as the stock price moved sideways and edged higher over the past few days.
The U.S. auto market has moved a bit lower during the first half of this year compared to last year, and the overall sentiment in the auto market remains pessimistic due to the cyclical nature of the market. There is very little room for the market to go higher from the current 17 million to 18 million units per month range.
But thankfully, things haven’t fallen off the cliff for the U.S. auto market. Despite the downward revision, GM expects auto sales to remain around 17 million. This poses a considerable challenge to volume leaders General Motors and Ford (F, Financial) as the companies have to keep their focus on profitability, reducing inventory while operating under tight margins.
GM has already made several moves in that direction. The company recently announced its exit from the Indian market and turned that into an export hub for Latin American nations. It closed its operations in South Africa and sold its European business for $2.3 billion.
“GM's hopes for huge growth in India have fizzled, and the automaker now plans to stop selling vehicles there entirely, instead turning it into a low-cost export hub for Latin America. GM also is abandoning South Africa after 104 years.” – Auto News
General Motors is using the current tight market conditions to make some painful decisions, but the focus seems to be to shore up bottom-line numbers instead of going after volume. The market has responded positively to GM’s moves as the stock snapped its downward trend (March to mid-May) and started moving higher in the last few weeks.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
