By Mike Colias 

General Motors Co.'s efforts to crank up production of pickups and other lucrative models drove a $4 billion profit in the third quarter, the latest automotive company to rebound from earlier Covid-19-related losses, even as the pandemic worsens.

The car business has mounted a striking recovery since U.S. auto plants were idled for several weeks last spring. Auto makers have managed to keep their factories bustling without major pandemic-related disruptions, while demand for new vehicles has come back stronger than analysts predicted when the crisis hit.

GM said Thursday net income rose 74% over the same quarter in 2019, when a bruising 40-day strike led by the United Auto Workers union halted work at the company's U.S. factories, denting earnings.

Adjusted pretax profit was $5.28 billion in the third-quarter of 2020, or $2.83 earnings a share. The results blew past analysts' expectations of $1.38 a share, according to FactSet, with GM crediting the strong quarter in part to cost-cutting moves taken this spring as the pandemic took a toll on business.

GM's stock was up more than 2% in midmorning trading.

Chief Executive Mary Barra said Thursday the company is looking to restore its dividend mid-2021, barring any major changes in economic conditions. Like other car companies, GM suspended its dividend this spring to preserve cash and weather Covid-related disruptions.

Operating margins in North America, one of GM's most important regions, hit 15% for the quarter, surpassing those posted by rivals Ford Motor Co. and Fiat Chrysler Automobiles NV in the region and reflecting the strength of the U.S. auto market recovery.

In an effort to further capitalize on strong demand for its high-margin pickups, GM said Thursday it would boost truck production in North America by building full-size models in Canada. The expansion is part of a tentative labor deal struck earlier in the day with Unifor, the Canadian union representing workers at GM factories in the country.

Still, executives cautioned results could moderate in the fourth quarter, as is typical in the back end of the year but also due to unknowns involving the economy and the coronavirus.

The number of new Covid-19 infections is rising fast in the industrial Midwest, the industry's manufacturing base.

GM, which suspended full-year guidance earlier this year, didn't offer a new outlook for 2020.

"We are hopeful we'll continue to have the strong recovery we've had," said Ms. Barra on a call with reporters Thursday. But, she said, there are still a lot of moving pieces right now, particularly with a relief package under discussion in Congress.

Auto makers are closely watching the election results because the outcome could have big implications for their businesses. Analysts say a Biden administration could give the industry a boost by providing more certainty around trade and regulations, and support of electric vehicles -- a technology companies, including GM, are already aggressively pursuing. If President Trump is re-elected, the president is expected to continue efforts to relax fuel-economy rules and pressure car companies to expand U.S. manufacturing.

Ms. Barra said she doesn't anticipate a contested election will have a sizable impact on U.S. auto sales as it did in the 2000 presidential contest because finalizing the vote count was expected to take longer this time around.

In October, U.S. vehicle sales for the second straight month matched the healthy levels seen before the pandemic hit, reaching a selling pace of 16.4 million vehicles for the month, according to a Morgan Stanley research note.

Adam Jonas, an automotive analyst with the bank, said he predicts the pace will fall off next year, to 15.5 million, "as demand normalizes against the economic uncertainty."

On Thursday, GM said it has repaid $5.2 billion on its revolving credit lines and plans to pay off the rest by the year's end.

Resurgent used-car prices also have bolstered auto makers' bottom lines. Despite predictions that values would sink from the economic slowdown, they have risen sharply. That has helped the car companies' lending units, which own the vehicles they lease to customers.

Ford Motor Co.'s credit arm had its highest quarterly pretax profit in 15 years in the third quarter, partly due to stronger used-vehicle prices, Ford said last week.

GM Financial also benefited from similar trends in the quarter, posting a pretax operating profit of $1.2 billion.

"GM reported what we regard as its biggest ever beat to consensus expectations," J.P. Morgan analyst Ryan Brinkman wrote in a note Thursday.

"The job of analysts and investors now will be parsing out how much of the margin strength relates to temporal factors unlikely to repeat (austerity-related cost saves) vs. how much is likely to flow through to future periods," Mr. Brinkman said.

GM generally has outperformed Ford in recent years by posting stronger profit margins in North America, where large pickup trucks and sport-utility vehicles deliver the majority of global profit for both companies. GM also has benefited from exiting unprofitable overseas markets -- still a trouble spot for Ford -- while remaining profitable in China despite pricing pressures and a drop off in sales.

GM's sales in China, the world's largest car market, rose 12% during the quarter, bouncing back from a steady decline in the past few years. GM's joint-venture equity income in China was $300 million in the third quarter, about flat with the prior-year period.

In North America, GM's three pickup-truck factories were especially busy during the quarter, which bolstered the bottom line. The auto maker entered the quarter with low inventory on dealer lots, thinned by the double whammy of the lost production from the spring shutdown and surprisingly strong demand for trucks amid the pandemic.

GM made about 303,000 pickup trucks in North America during the quarter, up 10% from a year earlier, according to research service Ward's Intelligence. Auto makers book revenue when their vehicles leave the factory. GM's overall output in the region rose 4%, to about 732,000 vehicles.

--Christina Rogers contributed to this article.

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

 

(END) Dow Jones Newswires

November 05, 2020 11:14 ET (16:14 GMT)

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