[RahulNagaraj]

General Motors and Ford have announced their financial results for Q1 2021. Both American car companies managed to post net incomes upwards of US$ 3 billion dollars each.



The profits come amidst a global semi-conductor shortage, which has forced companies to slash their production numbers. However, Ford and General Motors seem to have found a way to register huge profits, even with reduced production.



Reports suggest that General Motors has focussed its production on high-demand models with high margins. These include full-sized offerings such as the Chevrolet Silverado pickup, Cadillac Escalade and GMC Yukon among others.



The company is reported to have shifted the supply of chips from small cars to models with higher margins. The company has even idled the facilities manufacturing smaller models.

By doing this, the automakers have realised that they can register better results without stockpiling or padding sales volume with smaller cars that have low margins.



Automakers are now looking at a different approach towards achieving higher profits. Companies like GM, Ford and Daimler have been working on matching production and inventory numbers to customers demand.

The three companies want to do away with the tradition of aiming at higher sales volumes and putting pressure on keeping their factories running.

Source: Reuters

Link to Team-BHP news

[batladanny]

While there's no doubt that they are earning big, I still see this as a pretty short-term thinking. This approach will work in North America, Middle East and probably China and Australia. But it will result in reduced market share in Latin America, India, South-East Asia and even Japan and Europe (who while developed, still prefer smaller and economical vehicles).

If another oil/economic crisis hits, Ford and GM will be left standing high and dry.

And then resuming focus on smaller vehicles and smaller markets again will not be like flipping a switch. Consumers in smaller markets would be quite wary after having been abandoned by these brands earlier. Also, they'll lag behind in terms of R&D in these segments.

[DicKy]

Crossovers have gone softer and blurred the segment lines, while electrification is no longer a fad but here to stay.

But why do I have the feeling that the Americans are going to get the same punch below the belts that they got in the second half of the 2000s?

[ZenMaster]

Originally Posted by batladanny

While there's no doubt that they are earning big, I still see this as a pretty short-term thinking. This approach will work in North America, Middle East and probably China and Australia. But it will result in reduced market share in Latin America, India, South-East Asia and even Japan and Europe (who while developed, still prefer smaller and economical vehicles).

If another oil/economic crisis hits, Ford and GM will be left standing high and dry.

And then resuming focus on smaller vehicles and smaller markets again will not be like flipping a switch. Consumers in smaller markets would be quite wary after having been abandoned by these brands earlier. Also, they'll lag behind in terms of R&D in these segments.

India and Japan are not big markets for Fords. Why would they even bother pleasing us.

They have a separate portfolio for Europe. No hatchbacks bit smaller crossovers like the Puma.

As far as the huge profits through high margin SUVs, it was recently reported that the average price a new car buyer spends is around $38,000 in the US.

People willing to shell out more for "SUVs" or Crossovers is also a part of the problem.

[avira_tk]

These are full size vehicles with huge footprint and there is no alternative for them. European brands don't come near this market, the selling price are huge and so are the margins, as reflected in the balance sheets. The large SUVs even got diesel options in this model year.

This kind of money will fuel R&D for electric vehicles, there isn't going to be another oil crisis unless it's artificially created through politics.

[NH08]

Well, on the other end of the spectrum is Suzuki, which is also generating huge profits just by selling small cars. Its profit before tax, on an average for the last 5 years, is USD 1 billion in India alone.

Source

I think it all boils down to the question - what kind of product a car manufacturer makes better? Big, bulky kind or the 'tin ka dabba' one? Whatever you are expert at, you will mint money (provided same type of customers are there).

[shree_shell]

Not a surprise. Bigger is better is an American thing and no other country is interested in that concept. Japs, Euro and Korean big SUVs look cute in front of BIG American SUVs. I mean, you should see a GMC Denali in person. That thing could be used as a school bus.

FORD, FCA and GM know the pulse of the US market.

[TrackDay]

Originally Posted by shree_shell

Not a surprise. Bigger is better is an American thing and no other country is interested in that concept. Japs, Euro and Korean big SUVs look cute in front of BIG American SUVs. I mean, you should see a GMC Denali in person. That thing could be used as a school bus.

https://www.youtube.com/watch?v=q4WqzmeLi5Q

So true ! Look at the Escalade VS GLS comparison. Car makers like GM & Ford were always meant to cater bigger vehicles to the American audience while the small cars were the Forte of the Europeans/Japs, although Ford has tasted success in the Focus/EcoSport program world wide. That being said, with EVs on the rise we will have to wait and see the long term feasibility of the bulky heavy American SUVs being put to test in the realm of Electric cars. The current profits must also come due to sharing of the GMT T1XX platform between the Cadillac Escalade /Chevrolet Tahoe/GMC Yukon and many more derivatives. Those vehicles are a cash cow and are used by everyone ranging from the Presidents escort, multinational CEOs, celebrities to even drug dealers in the USA !

[GTO]

Originally Posted by batladanny

While there's no doubt that they are earning big, I still see this as a pretty short-term thinking.

Originally Posted by DicKy

But why do I have the feeling that the Americans are going to get the same punch below the belts that they got in the second half of the 2000s?

Ignoring small cars is small thinking. But it's typical of today's CEOs who want to please Wall Street & improve their share price at any and all costs. If gas prices rise and small cars are in demand again, that will anyway be the headache of the next-CEO , not the current one.

By ignoring smaller cars, they are also letting go of their expertise in packaging & weight saving, both of which are far more critical in smaller rides than large trucks. These two skills are MANDATORY in electric cars.

Ford, GM & Chrysler have handed over the compact car segments on a damn silver platter to Toyota, VW, Hyundai and gang.

Originally Posted by NH08

Well, on the other end of the spectrum is Suzuki, which is also generating huge profits just by selling small cars.

Suzuki is alive today only because of Maruti. If it weren't for Maruti's sales + profits + royalties, Suzuki would either be dead, or a small part of a large company that wouldn't care about it. Like Mitsubishi.

[CARDEEP]

I think they are cashing on Silverado & F-Series popularity & uncertainty arising from Corona. US has been through some difficult times & the gap between haves & have-nots has widened. Moreover, US has always been a big vehicle market, land yachts have been ever popular in USA.
It's haves who are spending money on products that can be aspirational, like the Fortuner & Innova in India. Seemingly they have picked up from Toyota's strategy.
The biggies (from Japan & Europe) too are also shifting focus on bigger looking vehicles. It's just that the Americans that sell big & making money on their big selling models & spin-offs.
This strategy makes sense as a businessman, since it can help make money for present & future. We are standing at point if transition from fossil fuels to cleaner technologies & the money earned now can find new product development.

[ads11]

Originally Posted by GTO

Ignoring small cars is small thinking. But it's typical of today's CEOs who want to please Wall Street & improve their share price at any and all costs. If gas prices rise and small cars are in demand again, that will anyway be the headache of the next-CEO , not the current one.

I feel like this investor pressure on these American CEOs and in fact a lot of auto CEOs is all a result of the stratospheric valuations they see for a "car" firm like Tesla. As listed companies, they have no choice but to follow that bar and adjust accordingly as investors must be expecting, if not the same ludicrous performance of the stock, but in the same ball park. All of which I find a tad bit unfair because I think it's safe to say nothing about the Tesla stock follows conventionally established wisdoms and beyond that it's hard to tell if it's even a legacy auto OEM, not when it's being valued like a tech firm! You can't be asking auto CEOs to make sure you get the kind of dividends FANG company shareholders get - not at a critical juncture like this when investment in the energy transition is going to be so capital intensive.

Anyway, all this is to say I think everyone can see that the American Big Three are being reactionary and not in a good way. We've seen for the last 5 years what happens with FCA being solely propped up by Jeep and Ram sales with nary a good idea or strong new product in any of the other brands (not one that's having a tangible impact in terms of the market). To see Ford adopt this position is particularly galling, for those of a European persuasion. Ford Europe, ie, Ford in the UK has always been a very different beast to its American parent and has had storied names such as the Fiesta, Focus, Mondeo/Escort/Cortina. We saw on Grand Tour them bemoaning the death of the sedan mainstay that is the Mondeo lineage. I can't see them culling the Fiesta as that still continues to be a strong seller, and so too the Focus but other than that, C-SUVs are going to be the smaller offerings from the blue oval when it comes to markets that aren't obsessed with land yachts in the same way the Americans are.

[Jeroen]

We have another recent thread on the car industry at large and whether it is very innovative.

Well, this thread proves the sentiments I expressed in that earlier thread. The automotive industry at large is led by greedy short term executives who would not recognise a great idea if it hit them in their behind.

If you ever wandered what the phrase milking the cash cow meant look no further. It’s about profits, short term bonuses, not about long term survival and or innovation.

Jeroen