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Home / Business / High-margin pickup trucks are driving GM profits, the shares are increasing

High-margin pickup trucks are driving GM profits, the shares are increasing



DETROIT (Reuters) – On Wednesday, General Motors Co reported a quarterly result that exceeded Wall Street expectations, thanks to high-grade trucks and small SUVs in the US market and cost reductions.

All of the first American automaker's profits came from North America, where the lucrative models helped overcome an overall decline in the number of vehicles it sold. The company's operations in China and South America combined nothing with the company's bottom line in the quarter. Shares rose 1.4 percent.

The stronger than expected fourth-quarter earnings, driven by strong US results, were in contrast to the work cuts GM has begun to make in its profitable and hourly workforce.

Detroit automaker has received political blowback, including from US President Donald Trump. Having announced at the end of November, it would not award new product to five factories in North America, which mainly produce less popular sedan models, suggesting that they are likely to close.

GM's CEO Mary Barra has made it clear that despite the criticisms, the losses needed for the automaker's long-term financial stability and to pay for the development of electric and self-propelled cars.

"We can't run with a 70 percent utilization," Barra said on Wednesday about the company's plant volumes. "We had to improve it … It's a transition we have to go through." An industry rule is that car manufacturers lose money when the plants operate below 80 percent capacity.

Barra also cited the company's efforts to move many of the affected hourly staff to other plants, and reduce the impact of cuts among workers.

On Monday, GM said about 4,000 salaried employees were starting to cut in the latest restructuring announced in November.

General Motors Co. shows the new Chevrolet 2020 Silverado HD pickup truck at the GM Flint Assembly Plant in Flint, Michigan, USA February 5, 2019. REUTERS / Rebecca Cook

That said, it would take a pre-tax of $ 3 billion to $ 3.8 billion to pay offsets, but expected the measures to improve annual free cash flow by $ 6 billion by the end of 2020. GM has said that commodity and trade costs would damage 2019 results by $ 1 billion.

On Wednesday, GM said China's $ 300 million operating profit in the fourth quarter was offset by other international markets. It sold fewer vehicles in China, the largest volume market, and the weak currencies in South America had also affected results.

"Our view of China in general is for the automotive industry to be flat year over year," said Finance Director Dhivya Suryadevara to journalists. "If you look at any of these economic indicators coming out of China, it's early signs of stabilization."

Buckingham Research analyst Joseph Amaturo said in a research note that he is still concerned about the longer term of vehicle pricing in China and North America, as well as demand in China. If China falls, GM will be challenged to hit its financial targets, he said.

Last year, competitor Ford Motor Co achieved a lower fourth-quarter profit as losses in all regions except North America, weighted the results.

Earlier Wednesday, Toyota Motor Corp. achieved a slightly higher profit, as demand for their bread-and-butter car models from cost-conscious Chinese buyers helped offset weak North American sales of its tent model models such as Corolla and Camry.

US .. New vehicle sales are expected to fall in 2019 due to rising interest rates and competition from a surfeit of cheaper, almost new used cars on the market.

GM reported Wednesday's fourth quarter net revenue of $ 2.1 billion, or $ 1.40 per share, against a $ 5.2 billion loss, or $ 3.65 per share, a year earlier. Excluding one-off items, it earned $ 1.43, over $ 1.22 analysts polled by Refinitiv IBES expected.

The GM logo is seen at General Motors Warren Transmission Operations Plant in Warren, Michigan on October 26, 2015. Photo taken October 26. REUTERS / Rebecca Cook

It reported a fourth quarter loss in 2017 to adjust for an overhaul of the US tax system. Apart from these costs, the automaker had reported net revenues of $ 2.4 billion.

The company maintained its expected earnings forecast for the full year 2019 between $ 6.50 and $ 7 per share.

Reporting by Nick Carey and Ben Klayman in Detroit; Editing by Nick Zieminski

Our Standards: Thomson Reuters Trust Principles.

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