GM Sees Weak Auto Markets Mostly Wiping Out Gains From New SUVs

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(Bloomberg) -- General Motors Co. shares climbed after the automaker forecast earnings will be flat this year as new truck and big SUV models help compensate for weaker demand in the U.S. and China.

Adjusted earnings per share will be roughly level with 2019 when excluding the effects of last year’s 40-day labor strike and other factors, GM said in a statement Wednesday. Its projected range of $5.75 to $6.25 a share compared with analysts’ average estimate for $6.24.

The company also eked out a small surprise profit in the last quarter. Analysts at JPMorgan Chase & Co. and RBC Capital Markets both called GM’s outlook for this year “good enough,” and the stock advanced as much as 3.1% to $35.45.

While other automakers have struggled to keep profits stable, GM has managed to offset weaker sales by selling more expensive models. That’s true in China, where Cadillac is growing and mainstream brands are in decline, and in the U.S., where GM is relying on a full year of its new pickups and the third-quarter debut of cash-cow Chevrolet Tahoe and Cadillac Escalade sport utility vehicles.

GM Sees Weak Auto Markets Mostly Wiping Out Gains From New SUVs

“We expect another strong year in 2020,” GM Chief Financial Officer Dhivya Suryadevara said in the statement. “Our relentless focus on improving our operating performance will enable us to generate strong cash flow through the cycle and invest in our future.”

GM Sees Weak Auto Markets Mostly Wiping Out Gains From New SUVs

The United Auto Workers walkout that ended in October erased some $3.6 billion in profit last year. Adjusted earnings for the fourth quarter, which treated costs from the strike and other charges as one-time items, were 5 cents a share, beating the average analyst estimate for zero profit. For the year, GM made $4.82 a share, which beat the average estimate of $4.77.

GM is expecting to weather 2020 conditions better than Ford Motor Co., whose shares fell as much as 9% in early trading. The No. 2 U.S. automaker by global vehicle sales forecast earnings this year that fell short of expectations. Ford is being hurt by its heavy spending to bring new models to market and investments in electric vehicles, with sales slumping in key markets.

China’s Market

GM’s profit in China tumbled as car demand there continued to contract, especially in the smaller cities where GM relies on its Wuling and Baojun brands. The trouble has been two-fold as GM struggles with an aging product line and, of late, an economy virtually on hold as the government tries to contain the coronavirus.

The Detroit-based automaker made $239 million in the fourth quarter, compared with $307 million in the year-ago period. Earnings for the year fell by almost half to $1.1 billion.

In a conference call with reporters, Suryadevara said GM remains bullish on its position in China. The Buick brand, where GM gets most of its volume, will be launching new models this year.

“The brands have a lot of brand equity -- that continues,” she said. “We have new vehicles coming with technologies that people want to see. Correcting some of the near-term challenges, our leadership position will continue.”

Strike, Cruise

The UAW’s strike hit GM hard, cutting $1.39 a share from fourth-quarter earnings and $1.89 from full-year results. The walkout reduced automotive adjusted free cash flow by $5.4 billion in 2019 to $1.1 billion.

For 2020, GM said the auto business should generate between $6 billion and $7.5 billion.

GM continue to spend a lot on Cruise LLC, the self-driving vehicle unity that is majority owned by the carmaker. The company cost GM $1 billion in 2019 and Cruise has been noncommittal about launching a ride sharing service that will start bringing in revenue.

©2020 Bloomberg L.P.

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