By Mike Colias 

The U.S. car companies are slashing capital spending and delaying some vehicle models to blunt the Covid-19 pandemic's fallout, a sign of much leaner times ahead in Detroit after a long stretch of prosperity.

General Motors Co. on Wednesday managed to eke out a $292 million first-quarter net profit thanks to stout U.S. truck sales but signaled steep losses in the current quarter.

Ford Motor Co. and Fiat Chrysler Automobiles NV earlier reported heavy first-quarter losses, and all three Detroit companies said they are either pushing back or scrapping vehicle models to manage a cash crunch and plunging vehicle demand.

Fiat Chrysler is cutting more than $1 billion in planned capital outlays this year and building in a three-month delay for many vehicle launches. Ford cut this year's capital-spending budget by nearly 10%.

The tighter budgets are already putting the squeeze on longer-range technology bets, such as electric vehicles and self-driving cars, that have been widely considered critical to car companies' strategies for the future.

Ford last week said it was pushing back the launch of a commercial driverless-vehicle service from next year to 2022 and has canceled a high-profile electric-vehicle project for its luxury Lincoln brand.

GM recently said it is pulling the plug on its fledgling car-sharing unit, Maven.

While executives say they remain committed to funding moonshot projects, those programs are years away from making money and are likely to come under more pressure if the pandemic ushers in a prolonged period of austerity for the car business, analysts say.

GM Chief Executive Mary Barra said the Covid-19 crisis is forcing the Detroit auto-making giant to make some hard choices, including on spending priorities that might have seemed important a few months ago.

"When you really challenge them, you find opportunities to save," she said during a conference call with analysts, referring to certain capital outlays.

For the past five years, auto makers have planned their business around a steady clip of 17 million vehicle sales annually, a historically strong run fueled by low interest rates and a recovering economy. Now, research firm IHS Markit expects sales to finish 2020 at around 12.5 million because of the pandemic, and many analysts expect next year's sales to remain far below recent levels.

For now, car companies are focused on restarting their North American factories, which have been closed since mid-March, leading to a cash crunch. But even after a successful restart, depressed vehicle demand could force further cost cutting to adjust production, analysts say.

GM said it is targeting May 18 to resume U.S. production but said it would be a gradual ramp up, starting with a single eight-hour shift across its factories, whereas GM's pickup truck and SUV plants essentially run around the clock during normal times.

Fiat Chrysler also confirmed this week most of its U.S. plants would reopen the week of May 18. Ford has yet to specify a date.

GM finance chief Dhivya Suryadevara said she expects global production will be down 60% to 70% in the second quarter, and expects the company to burn through $7 billion to $9 billion in cash during the period.

Detroit's auto makers are in better shape than they were heading into the global financial crisis in 2009, which left GM and Fiat Chrysler bankrupt and had Ford teetering. Still, their first-quarter financial results show how quickly cash can evaporate when production shuts off almost overnight, forcing them to conserve money in part by delaying or scrapping high-profile model launches.

The companies have been racing to bolster their cash cushions. GM, Ford and Fiat Chrysler collectively have added more than $45 billion in cash to their balance sheets, through issuing fresh debt or drawing on credit lines. Ford and GM both nixed their dividends, each saving at least $2 billion annually.

Still, company executives say they are trying to be more conservative in their spending and trim costs where possible, expecting the second quarter will be even tougher than the first.

Ford last week canceled plans to develop an all-electric Lincoln SUV with startup Rivian Automotive. It also postponed the reveal of its first new Bronco sport-utility vehicle since the mid-1990s and cited a potential delay in the first redesign in six years of its F-150 pickup truck, the company's biggest moneymaker.

GM has pushed back some vehicle programs and postponed plans to reveal an electric Hummer SUV.

Fiat Chrysler is expected to delay by a few months the rollouts of both a revamped Grand Cherokee SUV and a new Jeep Grand Wagoneer, a bygone nameplate that the company is resurrecting, according to research firm LMC Automotive. A Fiat Chrysler spokesman declined to comment. The Italian-American auto maker said Tuesday its pending merger with France's PSA Group is moving ahead.

The companies are pushing back the timelines to conserve cash. Payments from dealers dried up because vehicle shipments stopped in March with the factory shutdowns. Meanwhile, the auto makers have continued paying parts suppliers as bills from the past few months come due.

Ford said it burned through cash at a rate of more than $2 billion a week after its factories began closing around March 20. The outflow should ease in coming weeks as supplier payments slow and payments from dealers resume, executives have said. Fiat Chrysler went through more than $5 billion in cash during the quarter.

GM shares rose 3% Wednesday after the auto maker said pretax profit for the January-through-March period, excluding one-time items, fell 46% to $1.2 billion, citing a $1.4 billion impact from the pandemic. Pretax earnings per share was 62 cents, better than analysts' estimate of 40 cents a share, according to FactSet.

Revenue fell 6% to $32.7 billion. GM swung to a $167 million loss in China, from a $376 million profit a year earlier.

Strong results in North America carried GM's results, led by sharply higher sales of large pickup trucks and sport-utility vehicles. GM said sales of its large pickup trucks -- the Chevrolet Silverado and GMC Sierra -- rose 27% during the quarter, even as overall U.S. sales slid 7%. GM's traditional truck strongholds, including parts of the South and Midwest, were less affected by stay-at-home orders, Ms. Suryadevara said.

"Truck is our strong suit, and that is something we're going to capitalize on as we restart" the factories, Ms. Suryadevara said during a media briefing.

Write to Mike Colias at Mike.Colias@wsj.com

 

(END) Dow Jones Newswires

May 06, 2020 16:54 ET (20:54 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
General Motors (NYSE:GM)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more General Motors Charts.
General Motors (NYSE:GM)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more General Motors Charts.