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MarketScreener Homepage  >  Equities  >  Nyse  >  General Motors Company    GM

GENERAL MOTORS COMPANY

(GM)
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Trucks Shield Detroit Auto Makers From Global Headwinds - 2nd Update

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08/01/2019 | 02:37pm EST

By Mike Colias

Sales of big pickup trucks to American buyers are helping Detroit's car companies counter a sputtering global auto market.

General Motors Co.'s shares rose Thursday after the auto maker forecast an acceleration in profits through the rest of 2019, which executives said will be driven by an overhauled line of its biggest pickup trucks.

GM's profit from North America climbed 13% in the second quarter, and the company posted a 10.7% operating margin in the region -- the highest in more than a year -- helping offset weak China sales that more than halved its quarterly income from that market.

Fiat Chrysler Automobiles NV also surprised investors this week with an upbeat outlook after its Ram truck brand and Jeep business drove higher margins and operating profits in North America, leading to flat second-quarter operating profit overall.

GM and Fiat Chrysler solidified their profitability lead in North America over Ford Motor Co., whose operating results in the region slipped in the second quarter. Ford's top-selling pickup-truck franchise helped offset losses in China and South America, but higher-than-expected costs and a disappointing profit outlook for the year sent shares tumbling last week.

Fiat Chrysler posted an 8.9% operating margin, or operating profit as a percent of revenue, in North America in the second quarter, higher than Ford's 7.1%.

Big pickups give the Detroit car makers a vital profit lifeline as pressures build in the U.S. and abroad, especially in China, the world's largest car market. The three companies account for more than 90% of U.S. sales of the big rigs, which analysts estimate generate the bulk of global profit at GM and Ford and a substantial portion of the bottom line at Fiat Chrysler, which also leans on Jeep profits.

The market for big pickups is "one of the few oligopolistic auto segments with true pricing power," Credit Suisse analyst Dan Levy recently said.

The three Detroit companies have cut most of their car lines to focus on pickup trucks and sport-utility vehicles. They have been rolling out new models that are commanding higher prices. GM's Chevrolet Silverado and GMC Sierra left showrooms for about $45,500 on average in the second quarter, up 6% from a year earlier.

"You're really starting to see the earnings potential of our truck franchise," GM finance chief Dhivya Suryadevara told reporters Thursday. She said the launch of more redesigned truck models will propel GM's results in the second half of the year. The company stood by its full-year earnings guidance of $6.50 to $7 a share.

Ms. Suryadevara said GM is confident the truck market can remain strong. There is more pent-up demand for pickup trucks, which buyers generally hold on to longer than cars, and commercial customers provide a base of demand, she said.

GM's operating profit for the April-to-June period fell to $3 billion, or $1.64 a share, better than the average analysts' estimate of $1.44 a share. The largest U.S. auto maker by sales said revenue dropped 2% to $36.1 billion.

GM warned China's car market will likely continue to struggle. Industry sales there fell 12% in the first six months of the year, and GM's sales sank 15%.

Ms. Suryadevara called the China market volatile, with pressure on sales and pricing. She said GM expects profits from the country to hold steady in the second half of the year as it introduces new sport-utility vehicles that carry higher margins.

Second-quarter income in China sank 60% to $235 million. GM said China income in the last two quarters of this year should roughly match the first two, putting it on pace for about $1.2 billion there, down from $2 billion last year.

Elsewhere, earnings have slumped at the German luxury car manufacturers as trade tensions, slowing China demand and higher costs for developing electric cars take their toll.

BMW AG on Thursday reported its second-quarter net earnings tumbled 29% over the same prior-year period. Daimler AG, the maker of Mercedes-Benz cars, also said it would accelerate cost-cutting efforts in the second half after reporting the company's first quarterly lost in a decade in the April-to-June period.

Nissan Motor Co. said last month that it would cut 12,500 jobs, or 9% of its global workforce, after troubles in the U.S. drove a sharp decline in its second-quarter operating profit.

Write to Mike Colias at Mike.Colias@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
BAYERISCHE MOTOREN WERKE AKTIENGESELLSCHAFT 2.32% 57.35 Delayed Quote.-7.65%
FIAT CHRYSLER AUTOMOBILES 0.06% 13.262 End-of-day quote.4.57%
FIAT CHRYSLER AUTOMOBILES -1.01% 14.63 Delayed Quote.1.18%
FORD MOTOR COMPANY 1.01% 9.02 Delayed Quote.16.73%
GENERAL MOTORS COMPANY 0.65% 35.54 Delayed Quote.6.25%
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Financials (USD)
Sales 2019 137 B
EBIT 2019 8 580 M
Net income 2019 6 281 M
Finance 2019 4 076 M
Yield 2019 4,36%
P/E ratio 2019 8,06x
P/E ratio 2020 5,73x
EV / Sales2019 0,34x
EV / Sales2020 0,29x
Capitalization 50 779 M
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Mean consensus OUTPERFORM
Number of Analysts 22
Average target price 46,95  $
Last Close Price 35,54  $
Spread / Highest target 91,3%
Spread / Average Target 32,1%
Spread / Lowest Target -4,33%
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Managers
NameTitle
Mary Teresa Barra Chairman & Chief Executive Officer
Mark L. Reuss President
Dhivya Suryadevara Chief Financial Officer & Executive Vice President
Randall D. Mott Chief Information Officer & Senior Vice President
Patricia Fiorello Russo Independent Director
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