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Despite safety issues, GM’s sales still increase in June

It has been a mystery in the auto industry in recent months: How can General Motors, embroiled in a safety crisis that has led to the recall of about 29 million vehicles worldwide this year, continue to have such strong sales?

On Tuesday, GM again defied the negative publicity, announcing that its sales in June rose by 1 percent over the same month a year earlier, to 267,461 vehicles sold, and keeping pace with an overall strong industry performance.

For GM, it was a dose of welcome news, coming a day after another wide-ranging round of recalls — 8.4 million vehicles worldwide — and the announcement of a victims fund for those affected by a defective ignition switch that the automaker has linked to 13 deaths and 54 crashes.

Overall, automakers in June had their strongest monthly sales since before the recession, with a seasonally adjusted annual rate of 16.98 million vehicles sold, compared with 15.88 million a year ago. It is the highest reported rate since July 2006, with 17.16 million vehicles sold. Chrysler led the way, increasing by 9 percent, on the strength of Jeep sales, while Ford struggled, dropping by 6 percent.

Analysts cited several reasons for GM’s performance, like a stronger economy, demand after the bad winter, and to the recalls themselves — which drew people into dealerships.

“Early in the year, the harsh winter dampened sales, but pre-existing pent-up demand only strengthened during this time and since the country warmed back up, car shoppers have been out in full force,” said Jessica Caldwell, a senior analyst for Edmunds. Low interest rates and the proliferation of leasing, she added, have also enticed buyers to buy new cars.

Caldwell said there had been a disconnect between what people saw with the recalls of older GM cars like the Chevrolet Cobalt and Saturn Ion — which have been out of production for years — and how they acted when they were ready to make a new purchase.

“You’d think it would damage their brand,” she said. “But it’s actually helping to drive purchases at the dealership. You come in to have your old car fixed and see the new designs and technology, and wind up thinking ‘Maybe I’ll buy a new car.’”

Lower-cost financing offers and other incentives — like a $500 discount for customers who own recalled cars — are helping drive the trend, Caldwell said.

But sometimes there is no substitute for simply getting people in the door.

“A good dealer will tell you they just need to get a customer into the dealership, and they’ll do the rest,” she said.

Edmunds recently conducted a study of Cobalt models involved in the recall, and found that not only are a higher percentage of Cobalts being traded in, but that a higher rate of Cobalt owners are choosing to purchase another GM vehicle.

“We’re getting a good percentage of people in our lounge waiting for their cars to be fixed, and it’s the first time they’ve thought about buying a new car, but it’s time,” said Tim McMahon, general sales manager at Ganley Chevrolet in Brook Park, Ohio, near Cleveland.

McMahon pointed to refreshed models and economic incentives: “These new cars are nothing like the 2007s, 2008s, 2009s,” he said, adding: “Incentives are outstanding — particularly for the Cruze, Malibu and Equinox. They have outstanding leases on them.”

“This is a catalyst,” he said of the recalls. “It brought them to the dealership. It’s an unexpected benefit, but I think it’s helped. A lot of those turned into sales.”

Akshay Anand, analyst for Kelley Blue Book’s KBB.com, said GM was able to capitalize on buyers now because it was benefiting from an aggressive rollout of new and refreshed products, especially in trucks and sport utility vehicles.

“These kinds of trucks and sport utilities are a little pricier, but the economy is getting better now, so they’re benefiting,” he said.

Buick reported its best June sales since 2006, rising 18 percent compared with June 2013, driven its Encore sport utility vehicle, which rose 82 percent over the previous June, and two sedans, the LaCrosse, up 33 percent, and Regal, which rose 26 percent.

Chevrolet’s sales dipped 3 percent, while Cadillac was essentially flat and the GMC truck brand gained 11 percent in June compared with last year.

While GM kept pace with the industry, Ford struggled, with sales falling to 221,396, a 6 percent drop over the same month a year ago.

Erich Merkle, chief U.S. sales analyst at Ford, said in a conference call that the company’s June performance was partly because of lower incentives offered last month compared with competitors.

Average incentives across the industry were down about $50 in June compared with May, while Ford’s average incentives dropped $130, the company said.

Merkle also cited Ford’s attempts to balance inventory of F-series trucks in anticipation of the new aluminum-body F-150 coming out this year as a reason for the June sales drop.

The Chrysler Group had a 9 percent gain in June, its 51st consecutive monthly sales gain in June. Those sales were also driven entirely by the company’s trucks and sport utility vehicles. The automaker’s truck sales soared by 22 percent in June, while its cars dropped by 19 percent. The Jeep brand’s sales, for example, rose to 57,006, a 28 percent increase.

Among other automakers, Nissan reported sales gains of 5 percent in June, while Toyota said it had overall gains of 3 percent for the month. Hyundai reported a 4 percent gain.

Aside from Ford’s 6 percent drop, the other bad news belonged to Volkswagen, which reported a 10 percent drop and was down 22 percent for the Volkswagen brand itself. Audi, the company’s luxury brand, was up 23 percent, in contrast.

Posted to: Business

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