GM’S RECORD PROFITS
Automaker’s success driven by cost-cutting and several redesigned crossovers,
SOUTHFIELD, MICH.— Booming sales of new sport utility vehicles helped General Motors Co. set a profit record last year and is giving the automaker impetus to forecast steady earnings in 2018.
Even as sales at home slowed, GM posted adjusted profit of $1.65 (U.S.) a share for the fourth quarter, beating analysts’ average estimate for $1.38 a share. The company made up for shipping fewer vehicles to dealers by delivering pricier models and cutting costs.
“We couldn’t be more pleased with our results and disciplined execution,” chief financial officer Chuck Stevens told reporters Tuesday at the company’s headquarters in Detroit. “North American earnings and pricing has been a benefit. What has really driven results in North Amer- ica has been our focus on cost. It’s a combination.”
GM’s earnings strength has been fuelled by several new crossovers that were redesigned as American consumers pour into more spacious models. Both the compact Chevrolet Equinox and larger Traverse hadn’t been completely overhauled since around the time GM emerged from bankruptcy in 2009, giving the company an opportunity to make up for lost time in a big way. The stock jumped 18 per cent in 2017.
Two big charges last year led GM to report net losses of $5.15 billion for the quarter and $3.86 billion for 2017.
The U.S. tax bill made the company’s deferred tax assets less valuable, resulting in a $7.3-billion non-cash charge in the last three months of the year. The automaker also took a $6.2-billion charge in the third quarter related to the sale of its European units Opel and Vauxhall to the French carmaker PSA Group.
Sales of the Equinox rose 20 per cent in the U.S. last year and the more expensive Traverse grew 5.8 per cent. The new Equinox sold for an average price of almost $25,700 last month, up more than $3,000 from the average last year for 2017 models. The Traverse sells for an average of about $36,800, up about $7,000, according to data from GM.
GM also started selling redesigned Buick Enclaves and GMC Terrains last year. Its Cadillac XT5 crossover made major gains, with U.S. deliveries surging 73 per cent in 2017. Demand for the luxury brand is rapidly growing among Chinese consumers, with the division expecting global profit to double by 2021.
The SUV strength blunted the impact on GM from the seven-year streak of U.S. auto-industry sales growth coming to an end last year. Other automakers haven’t weathered the storm as well, with Ford Motor Co.’s fourth-quarter earnings prompting the stock’s biggest sell-off in almost 18 months.
Ford’s plan to enter the fast-growing small SUV segment in the U.S. — an area where GM’s Buick Encore has been competing since 2013 — could help it play catch up this year.
GM Financial, the automaker’s inhouse lender, has been expanding and should keep growing this year, Stevens said. Profit increased by about $400 million to $1.2 billion last year. The unit should eventually finance 55 per cent to 60 per cent of GM’s retail sales in the U.S., up from about 40 per cent in 2017, according to the CFO.
GM’s earnings for the year will prompt the company to pay its 50,000 union workers a bonus of $11,750, spokesperson Tom Henderson said.
Full-year earnings in 2018 will be in line with $6.62 a share for 2017, according to the company. Executives are forecasting steady profit even as the carmaker plans to idle truck plants so they can change over to building revamped Chevrolet Silverado and GMC Sierra pickups.