What GM is Doing Right, Despite Profit Drop

- Alec Gutierrez, Senior Market Analyst, Kelley Blue Book

General Motors reported a 41 percent drop in net income for the second quarter today.  Although profitability was well below marks from the same time last year, at $1.49 billion overall, the storied manufacturer is absolutely on solid ground. 

Although GM faces significant challenges both at home and abroad, they continue to execute on plans that will make them successful in the long term.  Specifically, GM has focused on providing one of the freshest lineups in the industry and provides an incredibly competitive product in every category in which it competes.  In the last year alone, GM has released an all-new Cruze, Sonic and Spark as well as a redesigned Malibu and Impala. 

In the last several months, GM has better matched production to meet demand, reducing their reliance on fleet sales and incentives allowing them to move excess inventory.  This strategy has already paid off in the secondary market.  On average, used-vehicle values are down more than 5 percent year over year due, but thanks to their emphasis on reducing fleet sales and managing incentives, values of used GM vehicles are only down 0.8 percent year over year, significantly better than the industry average. 

Keeping fleet sales and incentives in line to protect resale values, GM can offer more competitive leases allowing them to better support their retail sales business.  Although GM’s profitability has taken a hit, their product and sales strategies showcase their ability to right the ship quickly.