GM Truck and SUV Build Boosts Profit as Plant Shutdowns Loom
(Bloomberg) -- General Motors Co. started the year on pace for another record annual profit, fueled by cost cuts, new models and ample inventory after plants cranked up production before being retooled this year.
Earnings rose to $1.70 per share in the first quarter, beating analyst estimates of $1.48 a share. GM built up supply of vehicles including Chevrolet Silverado pickups and Buick Enclave SUVs to carry dealers over through 10 weeks of downtime scheduled for the third quarter, when plants will be idled and overhauled to make fresher products.
While the automaker has accumulated inventory now to avert any product shortages later, building up too much supply could necessitate heavy discounting on older models before they’re replaced with redesigned versions. GM is relying cost cuts and richer prices on new models to boost profit through the end of the year.
“We’re very focused on passenger-car inventory and ensuring we have the right, appropriate level of trucks and crossovers,” GM Chief Financial Officer Chuck Stevens said in a Bloomberg Television interview. “We’re very much on-plan thus far, but obviously this is something we have to watch very closely.”
GM shares climbed 1.1 percent to $34.91 as of 10:12 a.m. in New York trading. The stock slipped 0.9 percent this year through Thursday, trailing the 6.7 percent gain for the S&P 500 Index.
North American operations were the big profit generator for GM in the first quarter, bringing in $3.4 billion in adjusted earnings before interest and taxes, up from $2.3 billion last year.
While the inventory build helped profits in the quarter, Stevens told reporters in Detroit that cost reductions drove results. GM achieved about $500 million in cutbacks and added $400 million to earnings in North America by boosting vehicle prices, he said.
The downtime scheduled at plants this year will cost GM production of about 60,000 vehicles, Stevens said. GM lifted output by about 66,000 units in the first quarter, about half of which were built to pad inventory ahead of retooling efforts.
While the largest U.S. automaker’s competitors have peppered the market with new and refreshed SUVs in recent years to cash in on the booming segment, GM soldiered on with dated models like the Chevrolet Equinox, which last underwent major changes about seven years ago. It’s now playing catch-up, introducing updated versions of both the Equinox and its upscale sibling, the GMC Terrain.
The Chevy Traverse SUV also is getting a makeover later this year, and the Chevy Silverado and GMC Sierra pickups will be redesigned for next year. With GM’s trucks having gone years without a makeover, the company has spent heavily on rebates in recent months to protect market share from Ford Motor Co.’s F-Series and Fiat Chrysler Automobiles NV’s Ram.
GM is relying on stable profits from China and other global markets to buoy sales through what’s expected to be the first year of decline for the U.S. auto market since 2009.
In China, GM made $504 million, down slightly from $518 million in the first quarter of last year. Retail sales fell 5.2 percent after the government reduced a vehicle-purchase tax break.
GM’s South American business lost $115 million, almost double its deficit a year ago, while its European operations lost $201 million after nearly breaking even in the same quarter last year. Chief Executive Officer Mary Barra has brokered a deal with PSA Group to sell GM’s German unit Opel and its U.K. sister brand Vauxhall.
The GM Financial lending unit earned $260 million in the first quarter, compared with $225 million a year earlier.