GM’s Crossovers Keep Profit Rolling Through Truck Factory Revamp



General Motors Co.
’s costly truck changeover is making Chief Executive Officer Mary Barra’s promise of steady earnings a tougher sell with investors.

Pausing output of
Chevrolet Silverado
and
GMC Sierra
and retooling their plants to build updated versions of the lucrative pickups dragged on profitability in GM’s most important market last quarter. The automaker posted an 8 percent profit margin in North America, its worst showing in almost four years.

Barra
began 2018
saying GM would be able to sustain record earnings per share despite a slowing U.S. auto market. While hot-selling new crossovers like the Chevrolet Equinox are helping her cause, lost production of 47,000 full-size pickups in the first quarter and rising cost of steel and other commodities were stiff early-year headwinds.

Another challenge will be keeping Wall Street interested in its story over

Ford Motor Co.
’s. While GM continued to out-earn its cross-town rival in the first quarter, Ford won plaudits from analysts by almost doubling its planned cost cuts through 2022 and slashing investment in most of its passenger cars.

“It may be a case of buy Ford and sell GM,” said Morningstar Inc. analyst David Whiston. “I don’t think it’s deserved because the company is being set up to do quite well. The stock is still pretty cheap.”

GM shares fell as much as 3.4 percent and traded down 1.9 percent to $37.40 as of 1 p.m. in New York. Ford gained as much as 3.8 percent and were up 1.9 percent.

Margin Matchup

GM barely maintained an edge over Ford in North America last quarter

Source: Company statements


Adjusted earnings for GM fell to $1.43 a share in the first quarter, beating analysts’ average

estimate
for $1.24. New crossovers including the Equinox and GMC Terrain drove better-than-expected revenue of $36.1 billion.

GM reaffirmed a forecast that full-year earnings will be constistent with 2017. Chief Finance Officer Chuck Stevens cited strong sales of new SUVs, growth in China, improvements in South Korea and gains for GM’s auto-lending business. The carmaker also is standing by a projection for a 10 percent profit margin in North America for this year.

The company is “very much on plan based on our expectations for the year and given some of the challenges related to the truck downtime,” Stevens told reporters Thursday in Detroit. “Within that, we had very solid North American performance and record earnings in China and record earnings at GM Financial.”

Korea Restructuring

GM’s
restructuring
of its Korean operations resulted in a one-time charge of $942 million related to
closing a plant
in Gunsan, paying termination benefits and non-cash impairment charges. Its local labor union has ratified an agreement that, coupled with factory closure, will lead to $400 million to $500 million in annual cost savings.

Stevens said GM is reducing its workforce in Korea to 13,000, from 17,000, and cutting production capacity by 25 percent.

Pricier
raw materials
, especially steel, was a $200 million headwind in the quarter, and adding content to new models heaped on another $500 million in cost.

At the same time, GM’s China business reported record quarterly income of $597 million, up from $504 million a year ago. Its GM Financial lending unit doubled income to a record $443 million in the quarter.

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