When General Motors stopped providing its monthly vehicle production data last month, some stakeholders were highly discontent about the decision. Used as a key forecasting tool for analysts and parts suppliers, the move is fueled by GM’s desire to communicate a more accurate overview of the company’s profitability to Wall Street, said GM Chief Financial Officer Dan Ammann.
Initially announced during GM’s Q1 earnings call in May, the change will also provide the automaker with a more accurate picture of an individual vehicle’s profitability, according to GM Chairman and CEO Dan Akerson.
Historically, profit from the sale of a GM vehicle could have been partially recorded in the market where it was built, in the country where it was sold, and in the region where it was sold. Going forward, all earnings from a vehicle sale, plus the cost associated with its manufacturing, will be reorder in the country where it is sold. The change will assist GM executives make better and more informed decisions, according to Mr. Ammann.
“The main driver of profitability in any given market is going to be how many vehicles we sell there, not how many we produce,” said Mr. Ammann. “Historically, profitability was tied more directly to production, where something was produced; now it’s tied to where it is sold.”
“This gives us much greater visibility on where we’re making money and where we’re not,” Ammann says, adding that regional and country executives now “understand the total corporate profitability associated with that vehicle and can make the right price-volume trade-off in the marketplace.
The move is “a huge step forward” for GM in terms of managing the company, added Mr. Akerson.
Competitive forces also played a role in the decision, according to Mr. Ammann.
“We face a trade-off between providing information that is clearly tied between (vehicle) volume results and our financial results, and not disclosing every conceivable fact and figure that we have,” Ammann said.
But stakeholders, including analysts and parts suppliers, who rely on the data to forecast future production, have critiqued the move. Analysts, who determine an automaker’s ability to match supply with demand, state that they will no longer have data to forecast future vehicle output, while parts suppliers say that they rely on the numbers to keep their output volume in line with those of their customers. In place of the production figures, GM will post wholesale deliveries to dealerships as a way to gauge volumes.
Some constituents are planning to lobby GM in an effort to reverse its decision.
“Externally, it is not a big deal, but internally it’s a good example of how a finance perspective can give people a much better tool, much better visibility and transparency on total company profitability associated with a given car in a given market”, said Ammann.
Notably, The General’s move breaks a decades-long industry practice, as the data will not be released during GM’s monthly sales nor quarterly or annual financial reports. There are also fears that other automakers will follow in GM’s footsteps. The automaker will, however, continue providing the data to the U.S. government, as federal agencies use the data to compile reports of various key economic indicators, such as gross domestic product.
The GM Authority Take
GM’s reasoning in this matter makes complete sense: production numbers may have been relevant in the past, but sales are what matter today. Plus, the new method of accounting for vehicle sales on a global level is significantly less complex and provides for greater accountability by market.
When it comes to those who are in need of the production data but will no longer have access to it (analysts and suppliers), there are several elements that need to be taken into consideration. The distress from analysts is understandable, and it looks like they’ll need to find another way to get the data (perhaps by partnering with the U.S. Government). Suppliers, on the other hand, have an indirect but consequential stake in GM’s business; in that regard, they need to find a way to work with GM to exchange the data in question privately. Perhaps that’s a grand oversimplification… but if suppliers can make a solid case to get, for instance, a private data feed from GM (that they won’t share/leak publicly), then we don’t see a reason for GM not to oblige.