GM’s turnaround strategy starts to pay off
General Motors reports fourth-quarter net income of $2.1bn versus a loss of $5.2bn a year earlier
Detroit — General Motors (GM) on Wednesday swung to a quarterly profit thanks to high-margin trucks and crossovers in the US market plus cost cutting and maintained its full-year 2019 earnings forecast, lifting its shares 1.5% in early trading.
All of the leading US vehicle maker’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 added nothing to the company’s bottom line in the quarter.
GM sold fewer vehicles in China in the fourth quarter and the company said that weak currencies in South America had also impacted its results.
“Our outlook for China overall is for the auto industry to be flat year over year,” CFO Dhivya Suryadevara said. “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 remained 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 in January, rival Ford Motor posted a lower fourth-quarter profit as losses in every region except North America weighed on results.
Earlier on Wednesday, Toyota Motor 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.
GM reported fourth-quarter net income of $2.1bn, or $1.40 a share, versus a loss of $5.2bn, or $3.65 a share, a year earlier. Excluding one-time items, it earned $1.43, above the $1.22 analysts polled by Refinitiv IBES had expected.
“The quarter confirms that North America — specifically pickup trucks — continues to more than offset industry headwinds,” Citi analyst Itay Michaeli said in a research note.
GM reported a fourth-quarter loss in 2017 to adjust for an overhaul of the US tax system. Excluding those charges, the vehicle producer had reported net income of $2.4bn.
GM’s pre-tax margin for North America was 10.2%, down from 10.7% a year earlier.
GM said Monday it was starting to cut about 4,000 salaried workers in the latest round of restructuring announced in November.
The Detroit giant has received political blowback after announcing in late November that it would close five plants in North America that mostly produce less-popular sedan models.
GM said Tuesday it would add 1,000 workers at its Flint, Michigan, plant to build heavy-duty trucks.
The company maintained its full-year 2019 adjusted earnings forecast of between $6.50 and $7 a share. GM shares were up 1.5% at $39.87 in New York.