Rising prices, margins drive GM’s 3Q

Shares of General Motors rose more than 7 per cent Wednesday after the company posted a $2.5 billion third-quarter profit that blew away Wall Street estimates.

The Detroit automaker rode strong prices for much of its model lineup across the globe, especially in the U.S. where it rolled out redesigned versions of its Chevrolet Silverado and GMC Sierra pickups.

“Our discipline came through this quarter,” Chief Financial Officer Dhivya Suryadevara said, adding that she believes strong prices are sustainable as GM builds inventory of light-duty pickups and rolls out heavy duty versions.

The average sale price of a GM vehicle in the U.S. reached $36,000, $800 more than a year ago and a third-quarter record.

Even as auto sales started to ebb in the U.S., China and elsewhere,

GM said it earned $1.75 per share. Excluding one-time items, the company made $1.87, far exceeding analyst projections of $1.25 per share, according to a survey by FactSet.

Revenue jumped 6.4 per cent to $35.8 billion, also topping forecasts. The company was resilient in a declining Chinese market, where it posted record thirdquarter income of $500 million from July through September. And its pretax profit in North America, its most lucrative market, rose 33 per cent to $2.8 billion with a profit margin of 10.2 per cent.

GM also gave a more optimistic forecast for the full year, saying it expects pretax profits at the high end of its previous guidance of $5.80 to $6.20 per share as it rolls out the new pickups and does its best to battle higher commodity costs.

“We’re controlling what we can control,” Suryadevara said. “We’ve had an intense focus on costs.”

After falling since June, GM shares jumped 7.5 per cent to $36.05 in midday trading.

The strong profit from GM’s China joint venture came even with a budding tariff war with the U.S. and uncertainty over sales in the world’s largest auto market.

GM’s global retail sales to individuals, on the other hand, dropped 15 per cent during the quarter, to 1.98 million vehicles. But sales to dealers, the point at which GM books revenue, rose 4.5 per cent, to 1.13 million.

GM was hit once again by costs associated with its giant recall for faulty ignition switches. The company posted a $440 million charge as it updated estimated costs for legal claims.

A year ago, GM posted a $3 billion net loss due to a $5.4 billion charge for selling Opel and Vauxhall to France’s PSA Group.

The strong quarter is a result of GM executing well on its game plan, said Edward Jones Industrials Analyst Jeff Windau.

“If you’re selling vehicles that have higher price points, you’re able to offset some of those negative headwinds from the commodity prices,” he said.