General Motors Co. and Ford Motor Co. waste a lot of time producing models that don’t make any money.
That’s the finding of a study by analysts at Morgan Stanley Research.
The investment house used IHS Markit data to look at global light vehicle production by the two automakers. It then forecast the revenue per unit using manufacturer suggested prices to estimate revenue by model line. Morgan Stanley ran that information through its cash flow forecasts for the automakers to make an estimate of profit concentration across the model range.
GM and Ford “derive a disproportionate share of revenue and profit from a relatively small percentage of total products they offer,” the analysts wrote in a report to investors. Almost all of the profit and most of the automakers’ revenue come from trucks.
The companies sell dozens of models “that achieve insufficient levels of volume, insufficient price – or both – to justify continued funding,” they concluded.
Here is how it breaks down.
GM offered 80 light vehicle models globally in 2019. The top five by revenue are the Chevrolet Silverado, Tahoe and Equinox, the GMC Sierra and the Buick GL8. These are all trucks and SUVs except for the Buick, which is a minivan sold in China. These five vehicles account for 80 percent of GM’s EBIT, or operating income.
Just 10 GM models account for 44 percent of its revenue and almost 100 percent of its automotive operating income. Morgan Stanley said, “the other 70 models collectively, on our math, account for zero profit in aggregate.”
In dollar terms, the Detroit automaker’s top 5 revenue vehicles make about $5,300 per unit. The bottom 60 models, on a combined basis, lose $1,100 per unit. That grows to a loss of $3,600 for the bottom 30 vehicles.
Ford offered 47 vehicle models globally in 2019. The Dearborn, Mich., automaker’s top five models by revenue are the F-150 SuperCrew, the F-250/350 Super Duty, the Ranger, the Transit and the Focus. All but the Focus are trucks. Those vehicles account for 43 percent of Ford’s revenue and 101 percent of its automotive operating income.
Excluding the Focus, which Morgan Stanley says loses money, Ford’s top four products by revenue account for 120 percent of its global profit.
Trucks make Ford tick. Morgan Stanley estimated that the profit from all F-Series lines, Expedition, Transit, Ranger and Explorer makes up 160 percent of its global profit. That means those trucks are offsetting significant losses elsewhere.
The top five models have a blended average profit margin topping 12 percent. The next five come in at 4.2 percent. Outside of Ford’s 10 best models, the remaining 37 models lose on average nearly $800 per unit, Morgan Stanley said.
“While disclosure from the companies on these metrics is minimal or nonexistent, we feel this is a highly useful exercise to help convey some important messages to investors and to the industry,” the analysts wrote.
They also noted that the study was done without taking adjustment for the effect of the Covid-19 pandemic on the industry and the economy. It’s likely that the pandemic has caused the concentration of operating profits in a handful of models to become even more lopsided. Morgan Stanley looked at May auto sales. Truck sales continue to hold up better than the overall market and pickup trucks continue to gain share.
“Post-Covid restructuring provides a window of opportunity for (automakers) to cut waste and drive higher margins,” they said.