GM's Opel 'confident' despite widening Europe loss in Q1
DETROIT -- General Motors defied a slowdown in its U.S. home market in the first quarter while losses in Europe mounted.
The automaker said quarterly earnings jumped 34 percent, defying a slowdown in the U.S. market with stronger retail sales of SUVs and crossovers and growth at its financing arm. GM’s net income of $2.6 billion was the most of any first quarter since its 2009 emergence from bankruptcy. It also set first-quarter records for revenue, pretax profit and profit margins, both globally and for North America.
GM loss in Europe, where it is selling its Opel/Vauxhall brands to France's PSA Group, increased to $201 million compared with just a $6 million loss a year earlier.
Opel CEO Karl-Thomas Neumann said GM's loss in Europe was due to foreign exchange headwinds from a falling UK pound and a weaker Turkish lira, along with high investments in new products. In a statement Friday, Neumann said he was confident for the rest of the year because of the upcoming launches of the new Insignia midsize family, Crossland X small crossover and Grandland X compact crossover.
GM's results came a day after Ford Motor reported a 35 percent decline in its first-quarter profit. The GM earnings rise illustrates a growing divergence between the two largest Detroit automakers’ strategies and performance, as both companies struggle to generate enthusiasm on Wall Street.
“Our first-quarter results reflect our resolve to grow profitably and demonstrate the strong earnings power of this company,” GM CEO Mary Barra said in a statement on Friday. “More importantly, we advanced our strategic plan to transform GM for the long term and unlock more value for our shareholders.”
It was the eighth consecutive quarter in which GM’s results topped expectations on Wall Street. The earnings were equal to $1.70 a share, while analysts had projected $1.48.
GM said revenue rose 11 percent to $41.2 billion. Earnings before interest and taxes increased 28 percent to $3.4 billion on a margin of 8.2 percent, up from 7.1 percent a year earlier.
Rougher road ahead
But GM’s results will take a hit later in the year, when it has scheduled 10 weeks of downtime at multiple North American factories for retooling in preparation for several vehicle redesigns. CFO Chuck Stevens said the downtime will happen in the third quarter and reduce output by about 60,000 units.
The temporary shutdowns will affect production of pickups and crossovers, which are among GM’s most profitable vehicles. Because automakers book revenue as vehicles are shipped to dealers, rather than when dealerships sell them, the downtime could have a significant impact on GM’s third-quarter performance. It’s also boosting GM’s results now, as the company amasses extra inventory in preparation.
Stevens said GM expects to end 2017 with about the same level of inventory as it started the year with — a 71-day supply — which would represent a sizeable decline from the 97 days’ worth it had at the end of March, according to the Automotive News Data Center.
About half of the inventory build-up this year has been tied to the downtime later in the year, Stevens said. GM already cut production shifts at three car plants in Michigan and Ohio in the first quarter after demand for those models weakened.
“Typically you build inventory in the first quarter anyway, because the spring selling season starts,” Stevens told reporters at GM’s headquarters today.
GM's North American profit surged 49 percent to $3.4 billion, accounting for nearly all of the company’s total increase for the quarter. Revenue for the region was up 11 percent to $29.3 billion, even though wholesale volumes rose just 7.5 percent, and margins grew to 11.7 percent, from 8.7 percent a year ago.
China, South America
South American losses nearly doubled, to $115 million.
GM earned $319 million from its other international operations, down 16 percent despite steady sales in China amid weakening demand in that market. GM Financial earned $260 million, a 16 percent increase.
GM has said its 2017 profit would be flat or up slightly from last year. GM earned $12.5 billion in 2016 before interest and taxes, a 16 percent gain from the prior year.
The company is introducing four redesigned crossovers this year, including the third-generation Chevrolet Equinox that began arriving at dealerships in March. Updated versions of the Chevy Traverse, GMC Terrain and Buick Enclave are coming in the second half of 2016.
GM has said those vehicles would help North American margins top 10 percent for a third consecutive year in 2017.
The company made a $2.3 billion deal in March to sell its Opel/Vauxhall operations to PSA. The sale is expected to close by year’s end.