GM Counts On Job Cuts For a Boost -- WSJ

Date : 01/12/2019 @ 8:02AM
Source : Dow Jones News
Stock : General Motors Company (GM)
Quote : 37.67  -0.48 (-1.26%) @ 11:28PM

GM Counts On Job Cuts For a Boost -- WSJ

GM (NYSE:GM)
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By Mike Colias 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 12, 2019).

General Motors Co. said its earnings are picking up speed, with added momentum due to come this year from plant closures and job cuts denounced by President Trump.

Mr. Trump criticized GM Chief Executive Mary Barra in November after she outlined plans to shut several U.S. factories and lay off thousands of workers. Ms. Barra was summoned to Washington, D.C., by lawmakers irate about the potential fallout of GM's cuts on their communities.

The backlash notwithstanding, GM said Friday that its largest restructuring since its 2009 bankruptcy will have a speedy impact on its bottom line. The cuts to its North American operations should boost operating profit in 2019 by nearly 20%, or by more than $2 billion, with more benefit expected in 2020, according to projections GM gave during an investor conference in New York.

The Detroit-based auto maker also raised its guidance for last year's earnings, ahead of reporting its 2018 results on Feb. 6.

GM's shares rose 7% to $37.17 on Friday.

Ms. Barra, now five years into her tenure, has led the largest U.S. auto maker by sales to record profits in part by jettisoning slow-growing or unprofitable business units, including GM's European division in a 2017 sale.

She is currently focused on cutting costs and improving cash flow to sustain strong results in the event the U.S. auto market cools, while still funneling money toward future bets on electric and self-driving vehicles. GM's restructuring includes idling five factories in the U.S. and Canada this year, part of a plan that could cut around 14,000 employees en route to slashing $6 billion in annual cash costs by 2020.

"We know time is not our friend," Ms. Barra told analysts Friday. "These were difficult decisions because they impacted people."

GM has said most of the 2,800 U.S. hourly factory workers at risk of losing their jobs should be able to catch on at other GM plants if they are willing to commute or relocate.

The company on Friday also sought to tamp down fears of a significant decline in the world's largest car market, China. Slowing growth in China has rattled U.S. companies and the stock market, exacerbated by Apple Inc.'s revenue warning to start the year, which the phone maker blamed largely on a sluggish Chinese demand.

GM said its profit could slip this year in China, where GM's sales declined 25% in the fourth quarter. But Ms. Barra expects industrywide sales there to hold steady in 2019, and said she is encouraged by recent trade talks between the U.S. and China and Beijing's signal it could introduce consumer stimulus.

GM said its expects earnings per share this year of $6.50 to $7. The average analyst estimate was below $6. The continued U.S. rollout of new pickup-truck models -- the company's most lucrative products -- should boost profit, along with the savings from reductions in its North American workforce.

GM said it would continue spending heavily on autonomous-vehicle development this year, likely matching the roughly $1 billion it was on track to spend in 2018. Executives reiterated plans to begin a commercial robot-taxi service in an undisclosed U.S. city sometime this year.

Analysts for months have debated whether GM should spin off Cruise, its autonomous-vehicle business, valued at nearly $15 billion after investments last year from Honda Motor Co. and SoftBank Group Corp.

Cruise Chief Executive Dan Ammann said at the investor conference that it is too early to cleave off the San Francisco-based unit because of the close work that must be done between it and GM's engineering center in Detroit. But he didn't rule out the idea longer term.

"There will be a point in time where that dynamic does change," said Mr. Ammann, GM's former president, who took over Cruise this month. "But for right now having everything under one roof...is a huge competitive advantage."

The auto maker also has said it plans to double spending on electric vehicles in coming years, though it hasn't quantified the investment. On Friday, GM said its luxury Cadillac brand would serve as its "lead electric-vehicle brand," without detailing plans for specific models.

GM projected industrywide sales in the U.S. this year will come close to the 17.3 million vehicles sold in 2018, a historically strong number.

RBC Capital analyst Joe Spak said GM's 2019 profit outlook is stronger than he expected, while noting that the company's bullish view relies on continued strength in China and the U.S., the world's two biggest car markets.

"We, and we believe the market, have taken a more conservative approach to thinking about 2019," Mr. Spak wrote in a research note.

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

 

(END) Dow Jones Newswires

January 12, 2019 02:47 ET (07:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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