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GM Breaks from the Gloom with Surprise Forecast for Profit Gain

Jan. 11, 2019
GM to benefit from recent round of cost cuts, a focus on high-margin trucks and SUVs, and a better-than-expected U.S. auto market.

Forget about doom and gloom. General Motors Co. (IW 500/4) said that it will grow profit in 2019 even as global auto sales level off and investors have been expecting a tough year.

The Detroit-based automaker projected 2019 adjusted earnings will rise to between $6.50 and $7 a share, easily exceeding analysts’ $5.92-a-share average estimate. GM also said it will exceed the high end of its profit forecast for last year, which was $6.20 a share.

Key Insights

GM said that its recent round of cost cuts, a focus on high-margin trucks and sport utility vehicles and a better-than-expected U.S. auto market will fuel results that analysts didn’t expect to improve.

The rosy outlook will be cold comfort to many salaried employees, many of whom will find out this month if they are being dismissed as part of a restructuring announced late last year. But GM said that of the 2,800 hourly employees impacted by plans to stop allocating to four U.S. plants, all but roughly 100 will be provided positions.

The cost-cutting moves announced in November will help 2019 earnings by $2 billion to $2.5 billion, Chief Financial Officer Dhivya Suryadevara told reporters in a briefing Friday. GM said the restructuring will help profits by a total of $6 billion by 2020.

GM sees U.S. auto industry sales holding up this year in the low-17 million unit range, a more optimistic view than many analysts. Carmakers sold about 17.3 million vehicles last year. In China, GM expects retail sales to be in line with almost 27 million vehicles last year, but its profit in the region will be down slightly.

Market Reaction

GM shares surged as much as 7.3% to $37.28 as of 8:57 a.m. in New York. The stock dropped 18% last year.

GM also affirmed that Cadillac will be the first to sell an electric vehicle using GM’s all-new battery platform.

By David Welch

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