Auto Profits Abound in Third Quarter Thanks to Strong Truck, SUV Sales

us illinois general motors q3 report

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  • General Motors, Ford, and Fiat Chrysler all ended the third quarter of 2020 in the black thanks to strong truck and SUV sales.
  • The positive third-quarter finish for all three automakers is a marked improvement from the net losses in the second quarter as a result of impacts of the pandemic.
  • Toyota and Volkswagen both ended the quarter profitably as well.

    Monthly sales numbers through this year have made one thing very clear: Americans have wanted to weather the pandemic behind the wheel of new trucks and SUVs. Whether or not that’s the exact reason for the continuing surge in truck and SUV sales, automakers have reported very profitable third quarters thanks to the ever-increasing popularity—and resilience—of their large vehicles.

    The Detroit Three all saw their net incomes finish the quarter in the black and exceed analysts’ expectations. General Motors reported a profit of $4 billion, which is a 74 percent jump from the third quarter of last year. Similarly, Ford brought in $2.4 billion in profit over the quarter, up from $423 million a year ago. Fiat Chrysler’s earnings report yielded similar results with a reported $1.4 million in profit as compared to a loss of $200 million last year, the result of one-time expenses.

    General Motors CEO Mary Barra said in the company’s earnings call on November 5 that many factors played into their successful third quarter, including “the success of our safety protocols around the world; a stronger and faster-than-expected industry recovery in the U.S. and China; strong U.S. retail sales and market share, especially for pickups, with higher pricing and disciplined incentives; and the successful launch of our all-new full-size Chevrolet, GMC, and Cadillac SUVs.”

    Back in March, the Detroit Three—along with other automakers around the globe—decided to pause production to keep workers safe and ultimately, devise a plan for bringing their employees back to work. That shutdown, which lasted up to eight weeks, put an enormous strain on inventory levels, an issue which has persisted. Nonetheless, the Detroit Three all said that they have found their way back or close to returning to full production.

    “Despite the difficult backdrop of COVID, the Ford team executed well operationally. We optimized incentives for lower dealer stock levels,” Ford CEO Jim Farley said in the company’s earnings call on October 28. “We maximized production and skillfully managed supply chains to meet stronger-than-expected customer demand.”

    Among two non-American automakers which are among the largest automotive companies in the world, Toyota and Volkswagen, they both ended profitable this past quarter. Toyota saw a net income of $4.6 billion, which was down 11.3 percent from the same quarter last year. Volkswagen reported an operating profit of $3.8 billion before special items. These results, alongside those from the Detroit Three, mark a notable improvement from the profits reported in the second quarter of 2020 which were strained by the pandemic. Of these five, Toyota was the only automaker to see positive results in the previous quarter.

    “This was a remarkable quarter for our group, despite the lingering effects of COVID-19,” FCA CEO Michael Manley said in the October 28 earnings call. During that call, Manley also pointed out that FCA’s third-quarter results were “primarily driven by strong demand for Ram and Jeep vehicles.”

    Strong Truck and SUV Sales Remain Crucial

    Truck and SUV sales were strong before the pandemic began and enjoyed growing popularity, but these vehicles escaped the worst impacts of the pandemic due to their higher price tag. Data has shown that the impact of the pandemic has disproportionately impacted low-income Americans, a reality which is largely split from higher-income individuals who by-in-large, didn’t face mass layoffs. As a result, those higher-income individuals have remained in the market for new vehicles, particularly more expensive offerings such as trucks and SUVs.

    “It’s clear that consumers who are purchasing vehicles right now are feeling quite secure in their financial position despite the pandemic. The discouraging unemployment numbers we’re seeing across the country likely aren’t reflective of the Americans in the new car market,” Jessica Caldwell, executive director of insights at Edmunds, said in a note in response to third-quarter sales. “New-car shoppers are putting down more money and taking advantage of continued low interest rates to upsize either to bigger vehicles or vehicles with more amenities.”

    Although somewhat ironically, strong sales of pickups and SUVs, which are often referred to as “cash cows” for the automakers, are crucial for the car companies as they pour money into the development of future technologies such as electric and autonomous tech. “These results are providing capital for our EV and our AV growth initiatives, and they demonstrate the underlying strength and resiliency of our business,” Barra said.

    Ford, GM, and FCA have all cut back on their sedan lineups in the last few years to focus on trucks and SUVs, and that bet has been paying off. Now, the question is whether than can continue particularly as the coronavirus pandemic rages on and reaches levels far surpassing this past spring.

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