GM Eludes U.S. Auto Slowdown as Truck and SUV Wave Pads Profit

(Bloomberg) -- General Motors Co. defied a softening auto market with a surprise prediction that profit will remain steady this year and grow in 2019 thanks to a wave of new trucks and SUVs.

Earnings this year will be consistent with the record result the company pre-reported on Tuesday. While GM is going to grapple with costs related to overhauling big pickups, it also sees room to improve returns from what are already its most profitable models.

“We’re absolutely killing it in the middle of the market,” President Dan Ammann said of trucks that cost between $35,000 and $55,000. In both cheaper and more premium segments, GM has an opportunity to boost sales and lift the average prices paid, he told analysts at a Deutsche Bank conference.

GM shares climbed as much as 3.3 percent to $45.52, the highest intraday level since Oct. 26. The stock jumped 18 percent last year, as Chief Executive Officer Mary Barra won over long-skeptical investors by building a case that the more than century-old carmaker can compete on electric and self-driving vehicles with technology interlopers including Alphabet Inc.’s Waymo and Tesla Inc.

An overhauled fleet of sport utility vehicles including the Chevrolet Equinox and GMC Terrain is giving Barra the financial means to pursue still-theoretical returns from building battery-powered cars and mobility businesses for the future.

“Over the past few years, we have strengthened the core business,” Barra told analysts. “We have consistently demonstrated and delivered improved results and we will continue that momentum.”

Earnings this year will be in line with GM’s expectation for record adjusted profit of as much as $6.50 a share for 2017, according to the company. Analysts were projecting earnings would fall to $5.93 a share in 2018 as the automaker loses production of lucrative Chevrolet Silverado and GMC Sierra trucks that are in the midst of a major revamp.

Losing Share

GM’s optimism that its new pickups -- which go on sale starting this fall -- will grow profit starting next year is a welcome sign. The Silverado and Sierra lost market share to Ford Motor Co. and Fiat Chrysler Automobiles NV’s models in the U.S. last year, despite deep discounts in December.

This will be the first full year of production for refreshed SUVs including the Chevy Traverse, GM’s North American President Alan Batey said in an interview at this week’s Detroit auto show. Prices on the Traverse were $8,000 a vehicle more in December than a year earlier, he said.

GM hasn’t been able to make enough four-door crew-cab pickups that make fat margins, and the new Silverado and Sierra will be less supply constrained. And the GMC brand will play a key role in boosting GM’s average truck prices, Ammann said.

The high-end Denali sub brand should help bring in more premium truck buyers. And the company also forecast that its Cadillac luxury brand will double 2017 profit by 2021, although it didn’t provide detailed figures.

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 writedown 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 carmaker said it will spend about $1 billion this year on Cruise Automation, the San Francisco-based unit that developed the software in its self-driving Chevy Bolt electric cars. Most of that spending will be on engineering, Ammann told reporters Tuesday.

“We’re seeing the combination of a forward-looking strategic vision and fundamentals that are pretty good,” said David Kudla, CEO of Mainstay Capital Management. “We’re in the back side of peak auto sales, but the margins show they can make plenty of money.”

To contact the reporter on this story: David Welch in Southfield at dwelch12@bloomberg.net.

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Anne Riley Moffat, Kevin Miller

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