GM’s Barra: Flexibility Answer to Waning Car Demand

As news headlines continue to swirl with reports General Motors plans to eliminate at least six cars from its product portfolio, Chairman and CEO Mary Barra declines to address the future of specific nameplates and says only that the automaker believes its lineup is positioned alongside consumer preferences.

“We are seeing a smaller car segment,” Barra says, calling the rapid demand shift to trucks and CUVs, or those so-called crossovers with SUV-like styling and a car-like ride, a global phenomenon.

“We have taken an over-the-horizon look at where that is going and we have very efficient architectures,” she says during a conference call with Wall Street analysts to discuss the automaker’s second-quarter financial performance. “We can leverage that very effectively to be well-positioned as the market continues to transform.

“And we have strong SUVs and crossovers rolling out,” she adds. “We will be well-positioned.”

Barra does not elaborate on the efficiency of GM’s compact and midsize car architectures, which are the skeleton of a vehicle such as the chassis and propulsion system, but the automaker in recent years has engineered flexibility into their designs so body styles could switched relatively easily and inexpensively.

For example, the Chevy Volt extended-range electric vehicle, a compact car WardsAuto forecasts ending production in 2022, is widely expected to shift to a CUV body style. Various media reports say the Volt, as well as the Cruze compact car, Sonic subcompact and Buick LaCrosse, Cadillac XTS and CT6 large cars could be cut sometime after 2020.

Barra says GM’s compact and midsize car architectures launched in 2016 are designed to deliver more than two product lifecycles, which historically can range anywhere from four to eight years.

GM positioned to leverage flexibility of car designs, Barra says.

GM does not publically release lifecycle durations for its products, saying its focus is on improving the scale and flexibility of its cars and trucks while reducing development costs.

However, consumer demand for cars such as the Cruze rapidly has been waning, especially in the U.S. Cars accounted for 36.9% of U.S. light-vehicle sales through June, according to WardsAuto data.

GM has slashed production at its U.S. car plants in recent months to align its inventories with demand. Chief Financial Officer Chuck Stevens says additional cutbacks would be the first course of action for the automaker if car demand deteriorates further, rather than discounts to artificially spur sales.

“We do not want to damage the brand” with incentives, he says. “The compact segment is still a big segment and we still want to continue to improve the financial performance of those cars at whatever volume levels.”

Compact cars have accounted for 1.3 million industry sales so far this year, second in volume to CUVs at 2.8 million and narrowly ahead of pickups at 1.29 million. GM does not anticipate a recovery in car sales as the remainder of the year unfolds.

“We want to reach a natural demand, so we can get our manufacturing footprint and logistics and supplier footprints all aligned,” Stevens adds. “We will be competitive, but I would not anticipate significant price moves or incentive moves.”

GM expects third-quarter car and truck production to fall further in the second half of the year, as the automaker brings down output of certain cars and trucks as previously disclosed to accommodate tooling changeovers for future models. GM closed June with 980,454 LVs in stock and Stevens expects it to fall to between 800,000 and 825,000 by year-end.

GM earned $1.66 billion in the second quarter, down sharply from $2.87 billion year-ago. But taking out one-time charges and losses from the automaker’s recently jettisoned European operations, it delivers net income from continuing operations of $2.4 billion. Revenue fell $400 million to $37 billion.

“We delivered a strong second quarter despite a more challenging business environment that included softer industry sales in the U.S. and pricing challenges in China,” Barra says.

[email protected]