Retail Demand to Carry Bigger Load in Second Half at GM

Retail demand, a bit of a weak link thus far in the U.S. auto market recovery, will strengthen in the second half of 2010, General Motor Co. executives predict.

And with a strong lineup of new-vehicle launches on tap, the auto maker believes it may have a leg up on some competitors as personal-use buyers return to showrooms over the next six months and into 2011.

While some are scaling back projections for industry light-vehicle sales this year, GM is sticking by its initial forecast of 11.5 million to 12 million units, says Don Johnson, named vice president-sales operations about a month ago.

“(Everything) still points to a slow recovery,” Johnson says in a conference call with media and financial analysts to discuss the auto maker’s July sales.

He cites a drop in U.S. gross domestic product from the first to second quarter and a still-sluggish housing market as negatives holding back the recovery’s pace, but says GM believes there is low risk of the double-dip recession some fear.

Positive signs include the retail market, which had been bordering on anemic but is beginning to see some life.

“People that put off buying are starting to come back to the market,” Johnson says.

In July, GM LV sales totaled 199,612, up 2.5% on a daily basis from year-ago. If looking only at the auto maker’s surviving four brands of Chevrolet, Buick, GMC and Cadillac, sales were up 25% from like-2009.

New Regal expected to help drive retail demand.

“We’ve sold 125,000 more vehicles so far this year with four brands than eight brands in the 2009 period,” Johnson points out.

More important is the boost in retail demand. Chevrolet posted its best retail month since a “Cash for Clunkers”-fueled August 2009. Buick and Cadillac both doubled their retail volumes from year-ago and GMC posted a 29% gain in the month.

July marked the fifth straight month of double-digit retail increases and 10th consecutive month of retail gains for the four surviving brands combined. Including the defunct brands, GM’s retail sales fell 3.8% last month.

GM estimates industry retail sales at about a 9.2 million-9.4 million seasonally adjusted annual rate for July, only marginally down from last year.

“That’s pretty impressive, because Cash for Clunkers came in July,” Johnson notes.

Incentives are playing a role in perking up consumer demand. GM cites independent data indicating industry spiffs rose to about $3,000 per vehicle on average in July, up about $240 from year-ago.

But Johnson says GM cut its outlays $730 from like-2009 to $3,270. And because it is drawing more revenue per car sold, its ratio of incentives to average transaction price has fallen to 10.6% from 14.6% year-ago.

The latest figure puts the auto maker “bang on with the industry average,” Johnson says.

For the second half, GM expects retail sales to take a bigger share of its total deliveries. Fleets have accounted for 31% of sales so far this year, but Johnson sees that declining to 25%-28% for entire 2010.

That boost in showroom traffic should come without GM’s incentive-cost/transaction-price ratio worsening, he says, thanks to the number of new product rollouts coming. The list includes the heavy-duty fullsize pickups now hitting the market and Buick Regal and Chevrolet Cruze and Volt sedans.

“We expect that to gain retail share for us when fleet (sales) come down,” Johnson says.

The industry overall should mirror the fleet decline, he adds, but says GM “should do better on the retail side because of the new product we have.”

In July, GM fleet sales rose 47.8% from year-ago, but their 25.1% share of the mix marked the lowest level for the auto maker this year.

GM says it ended the month with 140,000 cars and 273,600 light trucks, including 53,600 cross/utility vehicles, in inventory.

[email protected]