GM, Fiat Chrysler Shares Climb As Investors Focus on Companies' Futures
October 24 2017 - 10:56AM
Dow Jones News
By Mike Colias and Chester Dawson
Shares in General Motors Co. and Fiat Chrysler Automobiles NV
rallied Tuesday even as conditions in the core U.S. auto industry
soften, the latest sign Wall Street is willing to give Detroit
credit for using a string of record profits to reduce debt and
sharpen focus on future technology.
The two auto makers reported dramatically different bottom-line
performances in the third-quarter, with GM posting a nearly $3
billion net loss related to the sale of its money-losing European
business and production declines in North America. Fiat Chrysler
earned $1 billion over the same period on a net basis, up 50% from
the third quarter in 2016.
Investor attention, however, has been trained on the companies'
futures.
GM has been pouring money into moonshot technologies, including
autonomous vehicles, while retreating from poor-performing markets.
The auto maker's revenue fell sharply to $33.6 billion during the
quarter, a testament to the company's exit from Europe, India and
Russia, and pullback from low-margin businesses in the U.S.,
including passenger cars and sales to rental companies.
Fiat Chrysler, meanwhile, has been chipping away at debt amid
continued interest in finding a partner to merge with. Chief
Executive Sergio Marchionne has been late to self-driving car
development and electric vehicles, but argues Fiat Chrysler needs
to find more scale through a merger before it can effectively
compete in those areas.
Shares of GM traded up 2.49% at $46.27 Tuesday morning near
their postbankruptcy high point, while Fiat Chrysler traded up
3.96% at $17.22. The continued momentum represents a shot in the
arm for at least two of the domestic auto makers that spent several
years with market valuations stuck in neutral despite record sales
in the U.S. market.
Ford Motor Co. reports third-quarter earnings Thursday. Shares
of the No.2 U.S. auto maker, however, haven't budged much even
after the company changed CEOs in May.
Delphi Automotive PLC said Tuesday that it has agreed to buy a
self-driving startup for $450 million, boosting the automotive
supplier's drive to bring autonomous vehicles to market by the end
of the decade.
Delphi's purchase of nuTonomy Inc., a Boston-based software firm
focused on automated driving technology firm, positions the
combined company as one of the leading players globally in a
rapidly developing future market for partially or fully
self-driving cars. It comes as part of Delphi's plan to transition
from a hardware-dependent component maker to a software-focused
service supplier.
GM's bottom line included a $2.3 billion expense from a tax
allowance that went away following the August sale of GM's Opel
European unit to French car maker Peugeot. GM said net profit was
$115 million on continuing operations, minus the year-ago results
from the business in Europe.
Operating profit from continuing operations dropped 31% to $2.5
billion, hurt by production cuts in North America. Several
factories were idled during the quarter to prepare for new-model
launches. GM also has moved aggressively to cut passenger-car
production in the face of weak demand, and it continues to trim
less-profitable car sales to rental agencies.
The production pullback is a hangover effect from the first half
of the year, when GM overbuilt at several factories in anticipation
of plant downtime in the third and fourth quarters. But auto makers
also have suffered from a severe downturn in demand for passenger
cars, which forced GM to cut about 3,000 workers across several
U.S. car plants this year.
GM's third-quarter production in North America fell 25%,
according to WardsAuto.com, contributing to an 8.3% decline in
operating profit. Finance Chief Chuck Stevens said the result
"demonstrates resilience" in the North American business given the
lower output, and credited GM's recent efforts to cut costs.
GM shares have rallied over the last two months amid analyst
focus on advancements in the auto maker's driverless-car program
and other advanced technology. Barclays analyst Brian Johnson said
in a research note Monday that a better-than-expected quarter from
GM even amid the production cuts could help sustain investor
momentum.
"We think this quarter could provide yet another data point that
the investor perception of GM is shifting," Mr. Johnson said.
Fiat Chrysler shipments in North America -- its largest region
-- fell 6% to 592,000, and overall revenue fell 2% to $31
billion.
Fiat Chrysler reported lower-than-expected net debt in the most
recent quarter, Evercore ISI said Tuesday, helping lower the auto
maker's financing expenses and lifted adjusted operating profit to
a record.
Allison Prang contributed to this article
Write to Mike Colias at Mike.Colias@wsj.com and Chester Dawson
at chester.dawson@wsj.com
(END) Dow Jones Newswires
October 24, 2017 10:41 ET (14:41 GMT)
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