GM, Fiat Get Profit Boost From Truck Sales -- WSJ
October 26 2016 - 3:03AM
Dow Jones News
By Mike Colias
Investor concerns about slowing U.S. light-vehicle sales, margin
pressures in North America and the fallout from Brexit overshadowed
solid profit growth from two of the biggest American auto makers on
Tuesday.
General Motors Co. said third-quarter earnings doubled to $2.8
billion compared with a year earlier and revenue increased 10% to
$42.83 billion, a sign the No. 1 U.S. auto maker by sales continues
to benefit from renewed interest in pricier trucks and
sport-utility vehicles. Meanwhile, Italian-U.S. car maker Fiat
Chrysler Automobiles NV, swung to a profit during the same period
and raised its outlook on strong demand for Jeep SUVs and Ram
pickups.
Shares in GM, however, slipped as Wall Street worried anew over
how a flattening in overall U.S. demand will affect auto makers
once known for consistently overproducing.
GM's stock on Tuesday fell 4% to $31.60 while Fiat Chrysler's
rose three cents to $6.54, both at 4 p.m. in New York trading.
"I think the market is saying today that this is as good as it
gets for [GM] in this cycle," Morningstar analyst David Whiston
said. GM finance chief Chuck Stevens said the U.S. industry is now
in "a plateaued environment" but said he expects U.S. sales to
remain relatively strong "over the next number of years."
GM, once dependent on rental-car sales and profit-sapping
incentives, has exercised notable restraint since Chief Executive
Mary Barra took over in early 2014. Even as GM's U.S. sales
leadership has eroded -- its U.S. market share fell to a
decades-low 16.6% for the first three quarters -- Ms. Barra has
bolstered profits by focusing on pricing, exiting low-margin fleet
sales and stepping back from underperforming regions.
The third-quarter results provide a view into GM nearly three
years after Ms. Barra took over as chief executive and encountered
a costly safety crisis that dented earnings and cost billions of
dollars to resolve. The company has emerged as one of the most
profitable mainline car companies in the world even if missing a
Europe profit target clouds the company's string of record earnings
performances in recent quarters.
Ms. Barra's discipline is headed for a test, however, as many
rivals, including Japanese auto makers, ratchet up pressure on GM's
light-truck and SUVs.
While North America remained strong in the third quarter,
margins in its home region were softer as GM spent more on
marketing and incentives to sell models that aren't as popular as
trucks or SUVs, such as the newly redesigned Chevrolet Cruze, a
small sedan.
GM's European operation, a perennial money loser, has been hit
recently by the U.K.'s decision to leave the European Union. One of
Ms. Barra's most ambitious targets is to deliver its first annual
profit in Europe since 1998, but $400 million in projected
Brexit-related costs, expected from the pound's fall against the
euro and dollar, make reaching that goal unlikely.
Mr. Stevens said the company had been on pace to earn money in
Europe before the Brexit vote, and said GM now will take "whatever
actions necessary" to blunt Brexit's impact. The company could
implement cost cuts and change the model mix, he said. It levied a
2.5% price increase in the U.K. on Oct. 1.
Mr. Stevens doesn't share investor concern about the future of
the company as a whole. He declined to provide a 2017 profit
forecast but said barring any "unforeseen economic development in
the U.S. or China," he said he expects GM's operating EPS to
improve next year. That will follow a record operating profit GM is
projecting for 2016.
In China, GM's operating income was flat at $459 million. Its
profit margin fell to 8.7%, from 9.8%, as stronger sales of its
higher-priced Cadillac and Buick brands were offset by weak car
demand and declining prices on older models. Some analysts expect
sales in China to cool if a sales-tax break on vehicles with
smaller engines expires at year-end as expected.
Fiat Chrysler, which sells less than half as many vehicles as GM
globally, earned EUR606 million ($660 million) in the quarter
compared with a loss of EUR387 million in the same period a year
ago due to charges related to vehicle recalls and a port disaster
in China. FCA relied heavily on Jeep and Ram pickup sales in the
U.S., but it also benefited from its Maserati luxury brand,
purchasing efficiencies and lower warranty costs.
Eric Sylvers contributed to this article.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
October 26, 2016 02:48 ET (06:48 GMT)
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