August 1, 2014 10:27:48 AM
As General Motors prepares to report monthly sales results today, a look at its numbers from June show just how intent the company is on keeping new-car sales on the rise during a record spate of safety recalls.
The Detroit automaker has recalled nearly 30 million cars and trucks this year, including some models that had barely rolled off the assembly line. Yet sales have been resilient, up 2.5 percent through the first six months of the year.
In mid-June, however, the automaker was headed for a year-over-year monthly sales decline, according to data compiled by automotive research firms. Then, on June 20, GM asked dealers to buy more cars, and it threw in another $1,000 in discounts per vehicle, five dealership representatives told The Associated Press. The company finished the month with a 1 percent gain.
The dealers said they were asked to buy the cars for a rental program, one that provides loaner cars for people whose vehicles are being serviced. When they buy the cars for the program, GM counts them as a retail sale. It's a longstanding practice used by nearly all automakers to boost sales results.
At GM, though, the incentive was unusually generous and came as GM executives try to steer the company through the worst safety crisis in its history, including the recall of 2.6 million small cars with defective ignition switches tied to at least 13 deaths. The company has allayed investor fears by saying that recalls have actually helped sales by bringing in customers who see vastly improved new models.
"Clearly the timing seems a little suspicious," said Jesse Toprak, senior analyst for the Cars.com website who predicted on June 22 that GM sales would be down 7 percent for the month, compared with a 2 percent decline for the rest of the industry. "Retail numbers at that point did not show any kind of strength." The industry eked out a 1.2 percent gain for the month.
GM spokesman Jim Cain confirmed that offers were made to dealers, but wouldn't give details. He said GM needed to make more models available as loaners for those whose cars are being recalled. As part of its small-car ignition switch recall, GM is offering free loaners to owners. But dealers have run short of cars for the program and have been forced to rely on rental car companies, which can loan out cars from competing brands.
GM has issued more than 83,000 loaner cars since the recalls started in February. But CEO Mary Barra said last week that it had fixed about 550,000 of the small cars, so the need for loaners was waning.
The automaker won't say how many vehicles were purchased by dealers in June. After about two months, the loaners are resold as used cars because of the miles on them, but buyers get low-interest financing and other incentives offered to new-car buyers, said the dealers, most of whom asked not to be identified for fear of reprisals from the company.
"There was a heavy push on an incentive program that increased sales," one dealer said. "If they don't have the volume they want, they'll come out to the dealers."
GM's U.S. sales rose 2.5 percent in the first half of the year, lagging the overall market's 4.3 percent gain.
Some dealers downplayed the importance of the discounts. Mike Marone, chief operating officer of AutoNation Inc., the country's largest dealership chain, said AutoNation bought a small number of discounted vehicles for its loaner fleet. But he didn't think the sales had a large impact on GM's numbers.
"I don't think it's as big a deal as it may sound," he said.
Marone and other dealers said other automakers also offer similar late-month discounts in order to juice sales and improve monthly numbers. Some make the offers every few months.
Some dealers worry that if GM continues to make similar end-of-the-month offers, the influx of used cars into the market will hurt resale values and new-car sales.
GM's Cain said that even without the sales to dealers, GM would have beaten analysts' sales expectations in June. Before the month ended, many analysts predicted GM sales would fall at least 6 percent. The loaner program, he said, has helped boost GM's reputation for customer service.
"That has been very important during the recalls that we have had, to be able to put customers into new GM vehicles and not have to force people into a Ford Focus," Cain said.
Sales at GM and the rest of the industry are expected to improve in July. Edmunds.com expects an 11.1 percent increase in total sales, with GM up 10.6 percent. When all the numbers are in late Friday, it may wind up being the industry's best July in eight years, Edmunds predicted.
GM's stock price has dropped nearly 16 percent since the start of the year. It had been trading around $37 recently, but began falling last week as GM announced that recall costs had dramatically cut into earnings. The shares closed Thursday at $33.82.
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