decided to discontinue public reporting of monthly vehicle-output data, a key forecasting tool for industry information providers and parts suppliers, because it wants Wall Street to have a more accurate view of company profitability, Chief Financial Officer Dan Ammann tells WardsAuto.
“The main driver of profitability in any given market is going to be how many vehicles we sell there, not how many we produce,” Ammann says in an interview. “Historically, profitability was tied more directly to production, where something was produced; now it’s tied to where it is sold.”
GM announced the internal reporting change during its first-quarter earnings release last month. Chairman and CEO Dan Akerson said then the switch would provide the auto maker with a clearer picture of an individual vehicle’s profitability.
“That may sound a bit strange, but we did not have the clarity and, therefore, the accountability that we have now. In terms of managing the company, this is a huge step forward,” Akerson said.
However, one external consequence of the move is withholding production data used by information providers such as WardsAuto to forecast future vehicle output. The data also is watched closely by parts suppliers looking to keep their output volumes in line with those of their customers and by analysts looking to take the pulse of the industry.
Wall Street analysts covet the information, as well, to chart an auto maker’s ability to match supply with demand.
Wall Street sources tell WardsAuto they intend to lobby GM to reverse course on the decision, while an executive at one Tier 1 supplier say he also intends to discuss the topic with the auto maker.
“It is extremely important to how we manage our business,” the supplier says, noting it serves as one of several pieces of data used to forecast parts production.
As a result, WardsAuto is estimating the auto maker’s output by plant, platform and vehicle line beginning with May’s results. Estimates will be accurate and based on reliable resources available to WardsAuto.
The move by GM signals a break in industry practice dating back decades, although the auto maker intends to continue reporting output to the U.S. government. Federal agencies use the data in compiling reports of key economic indicators such as gross domestic product. The data will not appear in quarterly or annual GM financial reports.
Ammann says competitive pressures also played a role.
“We face a trade-off between providing information that is clearly tied between (vehicle) volume results and our financial results, and not disclosing every conceivable fact and figure that we have,” Ammann says during a discussion with WardsAuto editors.
Bottom line, he adds, the change helps executives in various global markets make better, more informed decisions. In the past, profit from the sale of a vehicle could be recorded partially in the market where it was built, partially in the country where it was sold and partially in the region it was sold. In the future, all earnings from that sale, as well as the cost associated with its production, will be allocated to the country where it is sold.
“This gives us much greater visibility on where we’re making money and where we’re not,” Ammann says, adding that regional and country executives now “understand the total corporate profitability associated with that vehicle and can make the right price-volume trade-off in the marketplace.
“Externally, it is not a big deal, but internally it’s a good example of how a finance perspective can give people a much better tool, much better visibility and transparency on total company profitability associated with a given car in a given market.”