GM down as prolonged pickup rollout, China woes erode profit

While investors see warning signs in the numbers, GM executives say they’re still on pace to hit their forecast this year

SOUTHFIELD • General Motors Co (GM) shares slumped the most in over a month as earnings fell on the prolonged introduction of new pickups and a slowdown in China’s auto market.

Net revenue fell to US$34.9 billion (RM144.14 billion) in the first quarter (1Q) and was more than a half-billion below what analysts were projecting.

Adjusted earnings of US$1.41 a share topped estimates entirely because of the higher valuation of stakes in Lyft Inc, which listed its stock in March, and French carmaker Peugeot SA, which has revived GM’s German castoff brand, Opel.

GM has been losing market share in North America as it’s killed off slower-selling sedans, including the Chevrolet Cruze, and taken months to roll out redesigned trucks.

While higher-margin crew cab pickups are performing well as they trickle into showrooms, Fiat Chrysler Automobiles NV’s Ram has pulled ahead on the sales charts.

In China, a broader industry slump forced the automaker to slash production.

“There is yet more work to do beyond what we did” in China during the 1Q, Dhivya Suryadevara, GM’s CFO, told analysts on a conference call.

She added that the company is “still in the early innings” with its launch of the revamped Chevrolet Silverado and GMC Sierra trucks.

GM shares tumbled as much as 3.6%, the biggest intraday drop since March 20, and were down 2.5% to US$39.01 as of 12:30pm in New York on Tuesday. The stock is up about 17% this year.

“New pickup launches in the second half (2H) will keep GM competitive and hold light trucks at more than 80% of its North America vehicle mix

in 2019, eventually aiding margins as volume falls,” said Bloomberg Intelligence senior automotive analyst Kevin Tynan.

While investors saw warning signs in the numbers, GM executives said they’re still on pace to hit their forecast for as much as US$7 a share in adjusted profit this year and vowed improvement in the 2H of 2019.

The automaker will have a greater selection of redesigned pickups on the market in the US, plus 20 new models hitting showrooms in China, where industry sales are slumping for the first time in a generation.

GM’s China profit tumbled by more than a third to US$376 million in the quarter. Suryadevara said the company will cut production further in the 2Q to address bloated inventories.

“There’s been a lot of volatility” in China’s car market, Suryadevara told Bloomberg Television.

While GM is “seeing some green shoots in the overall economy”, she said, “what we’ve yet to see is have that translate into auto demand”.

There’s been talk of China’s government introducing stimulus to prop up demand, but a lack of specificity up to this point, Suryadevara said.

Even if investors believe GM’s case for a strong 2H, they may still sell shares now and wait for signs of a rebound, said David Whiston, an analyst with Morningstar Inc in Chicago.

“People have gotten used to GM beating estimates by a lot,” Whiston said in a phone interview. “It could be a 3Q story, but no one likes to wait.”

Another factor GM points to in promising performance will improve is its cost-cutting plan.

The carmaker expects to slash as much as US$2.5 billion in expenses this year, and only realised US$400 million in savings during the 1Q, Suryadevara said.

“While we’ve done much of the foundational work to right-size the business, we know this transformation is far from over,” CEO Mary Barra (picture) said on the earnings call. — Bloomberg