Boost for GM earnings projections
GENERAL Motors (GM) raised its earnings projection for 2016 by 25 cents a share, increased the size of its share buyback and boosted the dividend to start the year.
GM forecast adjusted earnings per share of $5.25 to $5.75 (R87.90 to R96.30) for the year. Anticipating better profits, GM’s board raised the share buyback plan to $9 billion from $5bn and boosted the dividend to 38 cents a share from 36 cents. GM shares jumped 5.9 percent to $32.08 at 8.17am New York time in early trading yesterday.
The company sees continued but slowing sales growth in its very profitable North American business and in China. GM’s new forecast comes a day after Ford, the second-largest US car maker, projected record profits in 2016 and announced a special dividend of $1bn. Ford shares fell 2.1 percent to $12.58.
“We made significant progress executing our strategic plan and the results are being demonstrated through improved earnings,” chief executive Mary Barra said yesterday at the company’s Detroit headquarters before discussing the outlook at a Deutsche Bank conference. “We expect to sustain strong margins in North America and China and break even in Europe.”
Part of GM’s optimism comes from the strong US lightvehicle market. In 2015, car makers sold a record 17.5 million cars and light trucks in the US and GM expects slight growth from that level.
Despite turbulence in China’s financial markets, GM management still sees the mar- ket growing. Breaking even in Europe would be progress since GM has not turned a significant profit there since the 1990s.
GM is relying on strong profits in North America with several key new models coming to market this year, such as the Chevrolet Malibu and Buick Lacrosse family sedans and the GMC Acadia and Cadillac XT5 sport utility vehicles.
Efficient investment
Another driver of improved financial performance was more efficient investment in new models, said President Dan Ammann. Almost all of GM’s new models were significantly lighter, which allowed the company to meet future fuel economy rules with less-expensive engines and transmissions, he said.
GMC’s new Acadia, which goes on sale in May, is 350kg lighter than the current version and had better fuel economy, GM said on Tuesday at the Detroit auto show. GM was also building more models using the same frame underneath the car, especially in emerging markets, reducing the cost to develop vehicles, Ammann said.
GM announced last year a plan to invest $5bn to develop new vehicles for markets like Mexico, China and India. One car platform would host those vehicles, replacing several costly sets of hardware, he said.
With GM already developing models more efficiently, the company hit its target of 10 percent margins – measured by earnings before interest and taxes (Ebit) – in North America.
GM was targeting 9 percent to 10 percent Ebit margin by the beginning of next decade, Barra said. – Bloomberg