Maybe the people at General Motors aren’t used to selling a lot Malibus.
For as long as I can remember, cars like the Malibu and Impala existed just to provide an option for the very few people who wanted a sedan but simply had to have a Chevy.
GM’s bread-and-butter vehicles have always been its full-size trucks, SUVs, and, more recently, crossovers. The profit margins on those rigs are much higher than on sedans and small cars, so the company doesn’t like to push its smaller vehicles too hard.
Some recent redesigns have turned Chevy’s cars, the Malibu and Cruze specifically, into genuinely competitive vehicles. Much to GM’s dismay, consumers are noticing.
AutoWeek ran a story yesterday about this problem and said,
Even worse, GM’s engineers and designers had the nerve to do their jobs so well that the Malibu had its best year since 1980.
In earnings speak, GM refers to this trend as an “unfavorable” product mix.
It seems counterintuitive, but GM’s profits fell in the fourth quarter because sales of the Malibu and Cruze are up. The vast majority of GM’s profit comes from sales of trucks and SUVs, which are still selling in enough quantities to keep GM comfortably in the black.
The company doesn’t want to sell too many non-profitable cars for obvious reasons. Their popularity could lead to a slowdown in production, in addition to layoffs, at factories that produce these cars in an effort to keep prices as high as possible and avoid having too much excess inventory on dealer lots.
What happens, though, if gas prices rise or the economy falters and people no longer want the excessive capabilities of large vehicles? Buyers will default to the smaller sedans and GM will find itself in the same position that led to its 2009 bankruptcy filing.
It’s somewhat of a catch-22 for GM. Produce more small cars and risk declining profits, or shun small cars and chase profits until the floor falls out and the small cars are needed to survive.
Maybe the Malibu and Cruze exist just as an insurance policy against a failed truck market. Until that happens, though, GM might prefer that you don’t buy one.
What would it take for you to choose a Chevy Malibu over a Honda Accord?
-tgriffith
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[…] which makes sense from a purely financial standpoint. We know that GM isn’t interested in selling too many sedans, because profit margins on those are nowhere near that of larger SUVs and trucks. We also know that […]