GM General Motors Company

By Mike Colias 

General Motors Co. warned that weaker results from China will continue to weigh on its bottom line this year as a lingering slowdown in the world's largest vehicle market takes a toll on even the biggest auto-industry players.

GM said Tuesday that income from China sank by more than one-third in the first-quarter to $376 million, driving an 11% decline in the company's overall operating profit. Chief Executive Mary Barra said she sees "more downside than upside risk in the near term" for China, where industrywide sales remain in their first protracted decline in decades.

Ms. Barra said it is hard to predict if sales will rebound this year because it is unclear whether Beijing will offer consumer incentives to stoke new-vehicle demand, and buyers seem to be holding off on purchases. The central government has encouraged local authorities to offer stimulus, but so far hasn't taken direct action to lift the auto sector.

"It's really key that we get some stability from the stimulus measures," Ms. Barra told analysts during a conference call.

Auto-industry sales in China fell 3% last year and sank a further 11% in the first quarter, transforming a once-reliable source of growth into a trouble spot for global car companies. GM is one of the top-selling car companies in China and earned about $2 billion there last year as smaller rivals racked up losses, but expects weaker results this year.

Overall, GM's operating profit for the January-through-March quarter totaled $2.3 billion, down from $2.6 billion a year earlier.

Operating earnings per share were $1.41, surpassing Wall Street analysts' average estimate of $1.10 a share.

Those results were lifted 31 cents by revaluations of GM's stakes in ride-hailing company Lyft Inc., which it took in early 2016, and French auto maker PSA Group. GM marked up the value of its Lyft stake, which had climbed higher than what was previously recorded on GM's books, after the ride-hailing company's initial public offering in March.

GM finance chief Dhivya Suryadevara reiterated GM's full-year, earnings-per-share forecast of $6.50-$7, versus $6.54 last year.

The weakness in China puts more pressure on GM's business in North America to drive future profit growth.

Operating profit from the company's home region fell 15% to $1.9 billion, hurt by a planned cut in factory production of highly lucrative sport-utility models, such as the Chevrolet Suburban and Cadillac Escalade. GM suspended production of the SUVs at its factory in Arlington, Texas, to prepare the facility to make versions scheduled to go on sale next year.

Ms. Suryadevara said the auto maker's results should accelerate in the second half of the year, partly from the rollout of new heavy-duty versions of its Chevy Silverado and GMC Sierra pickup trucks.

GM is reaping stronger pricing in the U.S., especially on its pickup trucks. This factor also helped lift the profit of rival Ford Motor Co. , which posted first-quarter earnings last week. Detroit auto makers dominate the market for big pickup trucks and large sport-utility vehicles, categories that contribute the vast majority of global profits for GM and Ford, analysts estimate.

A restructuring of its U.S. business also should help GM's bottom line throughout the year, Ms. Suryadevara said. GM was the subject of criticism from President Trump in March over the company's closure of a factory in Lordstown, Ohio, part of a broader plan that included thousands of salaried-worker layoffs in the first quarter. The company expects the moves to help operating profit by as much as $2.5 billion this year.

In a note to clients, Deutsche Bank analyst Emmanuel Rosner called GM's results "mixed" but said he sees "material improvement going forward as GM starts to realize the very large savings from its restructuring efforts."

Ms. Barra has described the effort as a transformation of GM as it pushes into new areas such as self-driving cars that are rife with new competition from well-funded Silicon Valley newcomers. The auto maker plans to spend $1 billion this year on its San Francisco-based Cruise autonomous-car division, including doubling its employee count to about 2,000 workers.

Ms. Barra was noncommittal, though, when asked by analysts whether GM would meet a previously stated goal of rolling out an autonomous ride-hailing service by the end of 2019. She said GM likes its position relative to other players trying to commercialize autonomous cars, but wouldn't confirm a 2019 launch.

"We expect to maintain the leadership position we are in now," she said. "Safety will be the priority."

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

(END) Dow Jones Newswires

April 30, 2019 17:36 ET (21:36 GMT)

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