Just looked into GM's performance related to SG&A and gross margin versus those of Ford and Toyota.
GM's doing way better in terms of SG&A than its competitors. In fact, while Ford and Toyota increased SG&A over the first three Qs of 2012 by 0.75% and 1.31%, respectively, GM reduced it by 0.48%.
On the other hand, GM's gross margins is still much lower. However, when you read through the Q3/12 CC transcript, you'll find that cost reduction is on the top of GM's agenda. For example, GM laid off 2600 employees in Europe in 2012.
The fact that GM has done a great job on SG&A is quite encouraging that they can do the same on the "costs of goods" side of things as well. A gross margin increase of 2% by 2015 is really not unrealistic under these circumstances, which would amount to an extra ~$3 billion of gross margin, and much of it would go directly into the bottom line, that is, into the EPS and PPS.
It's all good. I suggest you'd better take your #$%$-colored glasses of your nose if you can't see the potential here.
These are GM, Ford, and Toyota's SG&A and gross margins, and some Q3/12 CC comments on GM's actions related to cost improvements.
SG&A/Revenues (GM ... Ford ... Toyota)
FY/09: 11.99% ... 12.09% ... 11.18%
FY/10: 8.44% ... 9.06% ... 10.06%
FY/11: 8.06% ... 8.47% ... 9.89%
Q1/12: 7.87% ... 8.85% ... 8.64%
Q2/12: 7.56% ... 8.90% ... 9.03%
Q3/12: 7.54% ... 9.22% ... 11.20%
Gross Margin (GM ... Ford ... Toyota)
FY/09: (-7.21) ... 10.41% ... 11.96%
FY/10: 12.30% ... 15.63% ... 12.52%
FY/11: 12.71% ... 14.17% ... 11.81%
Q1/12: 12.19% ... 14.86% ... 15.06%
Q2/12: 12.41% ... 13.98% ... 15.34%
Q3/12: 12.06% ... 15.12% ... 13.55%
Comments on cost improvements in GM's Q3/12 CC:
"... As we invest, we're also confident that we will continue to improve our margins by mid-decade. ..."
"... Additionally, as proof of our ongoing cost controls, SG&A was down year-over-year while revenues were higher. This totals to $2.3 billion for Q3 of 2012. ..."
"... Astra has improved by EUR 500 per vehicle through a combination of favorable pricing and material cost reductions, all accomplished without sacrificing customer-valued attributes and features of the vehicle. ..."
"... Finally, our alliance with PSA will help us leverage our joint development at the 4 recently announced product programs to increase our scale in the region at significantly lower development costs. ..."
"... GME's total fixed costs are expected to be down $300 million in '12 from '11. We're targeting another $500 million reduction in fixed cost from '13 through '15. ..."
"... Including in these cost savings is a 2,600 headcount reduction in 2012. This is -- frankly, this is not new news to the people internally. Frankly, we're 2,300 people through this. ..."
"... Selling, General and Administrative Expenses is NOT a reason to buy GM . ... "
micky mullah mouse, your mind works in an interesting way. Because I state that GM's GS&A is superior than that of Ford and Toyota, you seem to interpret it as if I said it's the only reason to buy GM. Nope, definitely not. I hope that the gross margins will improve over time to get us us a sustainable $4 EPS ... obviously, the potential is here ... much will depend on how fast this Europe misery ends. $1.8 Billion is a whopping ~$1.2 EPS ... and that is what we are missing toget us to my last selling point at $36, IMO.
"... GM's margins suck for a company that pays no federal income tax. ... How can you endorse this stock in good conscience? ..."
well, that's the "appeal to emotion" logical fallacy ... that may work with effydogs but not with a dolphin.
Selling, General and Administrative Expenses is NOT a reason to buy GM. It is a reason to run away screaming. GM's selling expenses are low because they have old models. Their pickups have not been refreshed in a long time. As some of you have pointed out, this is about to change. They are going to come out with dozens of new models.
SG&A is going to skyrocket. Any new model involves lots of launch costs to support the launch. GM will have over 20 this year. I think we can safely assume their SG&A is going to rise dramatically over the next 3 quarters.
Sentiment: Strong Sell
Good benchmarking. I wonder what line items are the biggest culprits. Still lacking a bit on gross margin. Can't get detailed enough public data to make a good analysis, i.e., burden line item data.
"... I wonder what line items are the biggest culprits. Still lacking a bit on gross margin. Can't get detailed enough public data to make a good analysis, i.e., burden line item data. ..."
Yup. Teasing these numbers apart and making sense of the parts while reminding oneself that the whole is more than the sum of the parts is the tough part :) The point of my last post was much simpler. I was only surprised about this divergence in performance between GM's gross margin and SG&A.
As regards the culprits for GM's lower "gross margin" performance, IMO, there are two sides of this questions.
1) Decrease of gross margin in F9M (first nine months) of 2012 versus the same period in 2011
The Q reports actually provide some good line items to look into this questions. See p. 63 of the Q3 report. In F9M/12, two culprits stand out: vehicle mix and currency exchange.
The vehicle mix increased revenues by $2.5 billion, but at the same time also increased costs by $3.2 billion. This means, I suppose, that as a percentage of the overall vehicle sales increase in F9M/12, GM sold much more lower-margin vehicles, and this obviously reduces the gross margin. To improve on that, GM has been ramping up on truck sales.
Then, GM has suffered quite a bit from the higher dollar exchange rate. The higher dollar rate resulted in reduced revenues of ~$3.4 billion, but at the same time reduced costs by only ~$2.9 billion. The good news is that the dollar has been climbing down in the last Q against the Euro and going up against the Yen. I'd assume GM sells very little into Japan but sources much more from Japan, so that should be a positive. However, the Euro may come down again into the $1.2's ... but that's just a big IMO.
2) Consistently lower gross margin than Ford or Toyota over the years.
The previous point obviously does not explain why GM's gross margin is consistently lower than that of Ford and Toyota. Here's my seat of the pants perspective relative to Ford.
IMO, much of it is related to GM's organization in Europe. Although both GM and Ford struggle with the same fundmental crisis issues in Europe, the big difference on gross margins is that Ford Europe == Ford, but Opel != GM. Ford's global operations seems much more alined with their mothership in the U.S. than Opel is alined with GM. GM once called Opel a "fiefdom," which describes well this situation. Historically, Opel/Vauxhall's R&D, product line, manufacturing processes, supply chain, sales mechanism, etc., have had very little to do with GM, while the strategy of Ford Europe is much more driven by their headquarters in the U.S. So, IMO, there's a huge potential for GM to fix that. And as we know, GM is is working on it. Most speaking of this effort is that 80% of Opel's senior management was replaced over the last year, and reportedly many of the new guys that are leading Opel now have the appearance of a GM troyan horse, which IMO is a very good thing :)
Second, to increase the gross margin, I believe that GM's effort to improve on truck sales will also help a bit.