General Motors Keeps Riding Its Trucks -- WSJ
April 29 2017 - 3:03AM
Dow Jones News
GM posts another strong quarter, even as U.S. auto market begins
to soften
By Mike Colias
Brawny trucks like the Chevrolet Silverado pickup and Cadillac
Escalade SUV continue to rumble over the trouble spots creeping
into General Motors Co.'s path.
GM notched record profit and revenue in the first quarter,
despite signs of weaker pricing and consumer demand in the world's
two largest car markets -- the U.S. and China -- and widening
losses in Europe, South America and parts of Asia.
The results underscore how reliant GM's bottom line remains on
pickup trucks and SUVs, despite efforts in recent years to improve
its car offerings to better compete with Toyota Motor Corp. and
other Asian producers. Large pickups and SUVs are thought to
generate the majority of GM's profits even though they account for
roughly 11% of global sales.
GM said the 34% jump in first quarter net income to $2.6 billion
was helped in part, by the continued pricing power of its truck
lineup.
The nation's largest auto maker by sales posted first-quarter
operating profit of $1.70 per share, breezing past Wall Street
expectations of $1.47 per share. It also stood by its forecast of
$6 to $6.50 EPS for the year.
Ford Motor Co. and Fiat-Chrysler Automobiles this week also
posted earnings that topped analysts' estimates, bolstered largely
by pickup-truck and SUV sales.
"The pickup market remains very robust and strong," GM finance
chief Chuck Stevens told reporters Friday, noting that the
company's four North American truck factories are "running full-on"
to meet demand.
GM continues to generate the bulk of its profits in North
America, where it continues to command high prices for pickup
trucks and big SUVs, even as pricing erodes on passenger cars and
smaller SUVs industrywide. GM's average prices in the U.S. slipped
overall compared with a year ago, but the average price of a GM
pickup truck edged up nearly $700, to $42,650, a spokesman
said.
The stout truck business is helping to offset growing signs of
trouble in other areas of GM's business.
In the U.S., softening demand for passenger cars industrywide
forced GM in recent months to cut production, laying off more than
4,000 workers.
Shrinking car demand is leading to trouble for auto makers'
finance arms, too. GM estimates used-car prices nationally sank 7%
in the first quarter, the steepest drop in recent years. Weaker
used car prices can siphon away sales of new cars as consumers
choose cheaper options, while falling resale values make it more
expensive for car companies to lease vehicles.
Meanwhile, GM's sales in China fell 5% and pricing was squeezed
amid slowing demand after the government reduced a tax incentive
for smaller vehicles. GM countered by selling a higher mix of
pricier vehicles, including Cadillacs and Buicks, and maintained
flat equity income from its Chinese joint ventures at around $500
million.
GM continues to lose money in Europe, a region it will exit
later this year upon the expected closure of the sale of its Opel
division to French car maker Peugeot. GM's first-quarter loss in
Europe was $206 million, versus just $6 million a year earlier,
amid exchange-rate pressure stemming from Brexit.
Losses in South America widened to $115 million, from $67
million, as conditions in Brazil remain difficult despite GM's
expectations for improved performance in the region this year.
Despite beating profit forecasts, GM shares were flat Friday, as
they have been for much of the auto industry's unprecedented
seven-year run of rising sales. The stock has struggled to stay
above the $33 IPO price from 2010 despite two straight years of
record profits, reinstating a common-stock dividend and billions in
stock buybacks.
The lethargic stock price has drawn interest from activist
shareholders including Greenlight Capital's David Einhorn, who has
nominated a slate of three directors and is pushing a plan to
divide GM's shares into two classes, separating its dividend from
its operations. GM is urging shareholders to vote down the proposal
at its annual meeting in June.
Analysts point to concerns about a sales peak and whether GM can
sustain strong profitability if U.S. auto sales turn sharply lower.
Industry sales are slipping -- they're projected to decline for the
fourth straight month in April -- though few analysts expect a
steep decline in coming years.
In a research note Friday, Barclays analyst Brian Johnson said
GM might have to cut U.S. production later this year, and could be
forced to spend more on incentives if industry demand slows
further.
"Despite the strong beat," he wrote, "we question whether this
result will fundamentally alter the market view on GM."
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
April 29, 2017 02:48 ET (06:48 GMT)
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