Image Source: Tina Rossini
By Kris Rosemann
The US auto industry set yet another annual sales record in 2016, and General Motors (GM) finished the year on a high note, reporting total sales growth of 10% on a year-over-year basis in the month of December and retail sales growth of more than 3%. Though some market observers fear the industry may be reaching a peak, GM looks poised to continue reaping the benefits of a strong US auto market. The higher-than-anticipated gains helped the company grab additional market share in the US in both the total US auto market and the US retail auto market, where GM’s market share advanced 150 basis points and 30 basis points, respectively. GM now boasts 18.8% of the total US auto market and 17.6% of the US retail auto market, and it has gained retail market share in 18 of the past 21 months.
GM’s strong performance in December, in which it was the fastest growing full-line auto manufacturer, was led by impressive retail performance from the Chevrolet brand. The brand turned in 8% retail sales growth in the month, which was the company’s best December since 2007 in terms of retail sales. Chevrolet’s retail performance in the month of December was the brand’s best December since 2005, and 2016 was its best full-year retail performance since 2006, which helped it remain the industry’s fastest growing brand. More importantly, however, Chevrolet’s performance boosted GM to the US retail industry’s fastest growing automaker in 2016.
The Chevrolet brand, and GM in general, continues to benefit from high demand for light trucks and SUVs, as retail sales of its mid-size pickup model, the Colorado, leapt 20% in December from the year-ago period; its SUV lineup performed even better in the month, with retail sales of the Trax, Equinox and Traverse jumping 43%, 38%, and 22%, respectively. Though GM’s other brands–GMC, Buick, Cadillac–did not fare as well as Chevrolet in terms of retail sales in the month of December, each brand reported solid year-over-year gains in total vehicles sold.
Despite having put another year of record sales numbers behind it, GM believes the US auto industry is poised for sales to continue at or near record levels as we move into 2017. According to Mustafa Mohatarem, GM’s chief economist, “Key economic indicators, especially consumer confidence, continue to reflect optimism about the U.S. economy and strong customer demand continues to drive a very healthy U.S. auto industry.”
GM, however, has also found itself as one of the most recent targets of President-elect Donald Trump’s tweets. Trump criticized GM’s avoidance of a border tax on Chevy Cruze vehicles made in Mexico, and insisted the firm manufacture vehicles in the US or pay a hefty border tax. This comes shortly after rival automaker Ford (F) received criticism and then later a thank you from the President-elect over concerns of its growth plans in Mexico. We’re not expecting anything financially material to come of Trump’s criticism of GM, and it seems to have avoided the dreaded headline other firms have suffered as a result of such a tweet. GM CEO Mary Barra’s position on Trump’s economic-advisory panel is worth noting.
All things considered, we are pleased with our recent addition of GM to the Best Ideas Newsletter and Dividend Growth Newsletter, both of which occurred in the back half of 2016. Shares are surging on the news of the impressive sales growth in the month of December and solid market share gains. We see meaningful potential for shares to continue their run based on our fair value estimate of $43 per share, and we’re fans of the firm’s dividend growth potential despite its checkered past. GM’s Dividend Cushion ratio came in at an even 2 at last check, and shares are currently yielding an impressive ~4.3%.