How Is GM Making More Money While Selling Less Cars?

Money

Hint: It isn't magic.

Back in the day, GM was all about market share. It wanted to see its badges everywhere on the road because selling more cars equals more money, right? Wrong. As with many things in the auto industry, making profits isn’t as straightforward as it seems. Investing in building cars is no small feat, and many automakers struggle to break even. That was old GM, the one that gobbled up the largest share of the US new car market. New GM is now taking a different approach by selling fewer cars.

As a result, its market share has been tumbling and is down a percentage point from this time last year. However, this doesn’t mean that the General is making less money. On the contrary, its earnings have been on the rise as of late. It has a few factors to thank for the uptick, the first being its decision to lessen the amount of cars it is selling off to rental fleets. Typically, rental companies buy cars in bulk at a discount. This means that automakers get to brag that they sold many cars even though these sales have much lower profit margins. By slashing rental sales, volume sales numbers have dropped but the average price per transaction is up. Another boost has come from its small and mid-sized car sales, conflicting with current market trends.

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Right now, profitable SUVs and truck sales are up for the rest of the market but down at GM. New cars like the Chevy Malibu, Spark, and Volt are all strong (no thanks to Chevy’s ad campaigns) while the Colorado, and GMC Canyon are eating up market share due to Ford’s negligence. To add icing to the cake, it’s the venerable Escalade that has been keeping Cadillac afloat. The SUV is highly profitable for GM and Cadillac dealers just can't keep customers from buying them. The news can be taken in two ways. The first is to see GM’s unique problem as a sign that it is becoming a more effective manufacturer. The second is to recognize that it stands to improve its sales so that the auto giant reaches the top spot again.

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