General Motors
Traverse 2018

GM Surprises with Steady Profit View Amid Truck Changeover

Jan. 16, 2018
“We are positioned for another strong year in 2018 and an even better one in 2019,” CEO Mary Barra said.

General Motors Co. surprised Wall Street by predicting steady profit this year and an earnings jump in 2019, bolstered by an overhauled fleet of crossovers and a new generation of pickups.

Earnings this year will be consistent with GM’s expectations for record adjusted profit of as much as $6.50 a share for 2017, according to a statement. Analysts were projecting earnings would fall to $5.93 a share in 2018 as the largest U.S. automaker loses production of lucrative Chevrolet Silverado and GMC Sierra trucks in the midst of a major overhaul.

The forecast could boost confidence in GM’s ability to handle an era of upheaval for the auto industry. The carmaker is girding for a future of self-driving and electric vehicles without compromising the success of the sport utility vehicles and pickup models that bring in the bulk of its profit now. A revamped line of crossovers including the Chevrolet Equinox and GMC Terrain will help dealers cope with a costly changeover to new Chevy Silverado and GMC Sierra pickups hitting the market later this year.

“We are positioned for another strong year in 2018 and an even better one in 2019,” CEO Mary Barra said, which didn’t provide detailed guidance for results next year.

Results will benefit this year from new crossover SUVs like the compact Chevrolet Equinox and larger Chevy Traverse. This will be the first full year of production for both models, GM’s North American President Alan Batey said in an interview at the Detroit auto show. Prices on the Traverse were $8,000 a vehicle more in December than a year earlier, Batey said.

GM also expects its full-size pickup program will continue to grow profits in 2019. The company hasn’t been able to make enough of the four-door crew cab pickups, which make fat margins, but the new Chevy Silverado and GMC Sierra will have no such constraints, GM said in a slide presentation. The company said it also expects its Cadillac luxury brand will double 2017 profits by 2021, though the slide presentation didn’t put a dollar figure on the division’s earnings.

Since 2012, the average prices of GM’s pickups have risen from about $38,000 to almost $46,000, and prices should continue to rise, GM said in the presentation, noting that “a multi-billion opportunity remains.”

The U.S. tax bill will deliver a cash and profit benefit to GM starting in 2018, according to a regulatory filing. The automaker will take a $7 billion write-down for the fourth quarter of 2017 because its deferred tax assets will be worth less under the reduced corporate tax rate, spokesman Tom Henderson said.

GM has vowed to test a self-driving Chevy Bolt without a steering wheel or pedals next year and roll out 20 all-electric vehicles by 2023. The company kicked off the Detroit auto show this week by revealing the new Silverado in a bid to grab market share in a segment that still dominates American showrooms, despite all the buzz about electrification and autonomy.

The carmaker said it will spend about $1 billion on Cruise Automation this year, the San Francisco-based unit that developed the self-driving Chevy Bolt electric car. Most of that is engineering spend, GM President Dan Ammann said. That means most of GM’s $8.5 billion capital spending budget for this year will go toward developing new models.

By David Welch

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Licensed content from Bloomberg, copyright 2016.

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