High-margin pickup trucks drive GM profit, shares rise

General Motors Co displays the new Chevrolet 2020 Silverado HD pickup truck at the GM Flint Assembly Plant in Flint, Michigan February 5, 2019. — Reuters pic
General Motors Co displays the new Chevrolet 2020 Silverado HD pickup truck at the GM Flint Assembly Plant in Flint, Michigan February 5, 2019. — Reuters pic

DETROIT, Feb 7 — General Motors Co yesterday reported a quarterly profit that exceeded Wall Street expectations, thanks to high-margin pickup trucks and small SUVs in the US market and cost cutting.

All of the No. 1 US automaker's profit came from North America, where those lucrative models helped overcome an overall drop in the number of vehicles it sold. The company's operations in China and South America combined added nothing to the company's bottom line in the quarter. Shares rose 1.4 per cent.

The stronger-than-expected fourth-quarter profit, driven by strong US results, stood in contrast to the job cuts GM has begun to make in its salaried and hourly workforces.

The Detroit automaker has received political blowback, including from US President Donald Trump, after announcing in late November it would not allocate new product to five plants in North America that mostly produce less-popular sedan models, indicating they will likely close.

GM Chief Executive Mary Barra has made it clear that, despite the criticism, the cutbacks are necessary for the automaker's long-term financial stability and to pay for the development of electric and self-driving vehicles.

“We can't run at a 70 per cent utilisation,” Barra said yesterday about the company's plant usage rate. “We had to improve that ... It's a transition we have to go through.” An industry rule of thumb is that automakers' lose money when plants operate below 80 per cent capacity.

Barra also cited the company's efforts to shift many of the affected hourly workers to other plants, lessening the impact of the cuts among blue-collar workers.

GM said Monday it was starting to cut about 4,000 salaried workers in the latest round of restructuring announced in November.

It said then it would take pre-tax charges of US$3 billion to US$3.8 billion (RM12.25 billion to RM15.5 billion) to pay for the cutbacks, but expected the actions to improve annual free cash flow by US$6 billion by the end of 2020. GM has said commodity and trade costs would hurt 2019 results by US$1 billion.

GM said yesterday that China's US$300 million in operating earnings in the fourth quarter was offset by other international markets. It sold fewer vehicles in China, its largest market by volume, and said weak currencies in South America had also impacted results.

“Our outlook for China overall is for the auto industry to be flat year over year,” Chief Financial Officer Dhivya Suryadevara told reporters. “If you take a look at some of these economic indicators coming out of China, there are early signs of stabilisation.”

Buckingham Research analyst Joseph Amaturo said in a research note he remains concerned longer-term about vehicle pricing in China and North America, as well as demand in China. If China slumps, GM would be challenged to hit its financial targets, he said.

Late last month, rival Ford Motor Co posted a lower fourth-quarter profit as losses in every region except North America weighed on results.

Earlier yesterday, Toyota Motor Corp posted a slightly higher profit as demand for its bread-and-butter car models from cost-conscious Chinese buyers helped offset weak North American sales of its marquee sedan models such as the Corolla and Camry.

US new vehicle sales are expected to drop in 2019 due to rising interest rates and competition from a surfeit of cheaper, nearly-new used vehicles on the market.

Yesterday, GM reported fourth-quarter net income of US$2.1 billion, or US$1.40 per share, versus a loss of US$5.2 billion, or US$3.65 per share, a year earlier. Excluding one-time items, it earned US$1.43, above the US$1.22 analysts polled by Refinitiv IBES had expected.

It reported a fourth-quarter loss in 2017 to adjust for an overhaul of the US tax system. Excluding those charges, the automaker had reported net income of US$2.4 billion.

The company maintained its full-year 2019 adjusted earnings forecast of between US$6.50 and US$7 per share. — Reuters

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