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Jan 11, 2019

GM surges after surprise forecast for annual profit gain

GM shares rise as its profit forecast breaks from gloom

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Forget about doom and gloom: General Motors Co. defied expectations it would be downbeat about earnings this year, fueling a rebound for its battered shares.

GM’s forecast that profit could flirt with record levels in 2019 flouted predictions that industry sales in China and the U.S. will slump this year. The company sees demand in both markets holding up and earnings improving as it cuts costs and rolls out revamped pickups and new SUVs.

“We are focused on this transformation to make sure GM is strong and really demonstrating, even in a cyclical business, that we can continue to deliver results,” Mary Barra, GM’s chief executive officer, said in a Bloomberg Television interview.

Barra, 57, is striking a more optimistic tone than rivals Volkswagen AG, BMW AG and Daimler AG. The three have warned of challenges in the year ahead including higher material costs, tougher emissions standards and trade tensions. Ford Motor Co. and Tata Motors Ltd.’s Jaguar Land Rover also are slashing thousands of jobs in Europe.

“The auto industry is one that not many people like right now, but GM is giving them a reason to like it,” said Keiran Ryan, a Bloomberg Intelligence analyst.

GM shares surged as much as 8.9 percent to US$37.83 as of 12 p.m. in New York. The stock is the biggest gainer in the S&P 500 on Friday and is bouncing back somewhat from last year’s 18 percent plunge.

GM forecasts industry sales in the U.S. probably will be in the low-17 million vehicle range, compared with about 17.3 million in 2018. The automaker said deliveries in China may be close to the almost 27 million vehicles that were retailed last year.

But even as its two major markets stall, GM expects to boost earnings by building up supply of its new pickups, which started selling in limited numbers in the third quarter.

Fresh Metal

About half the current inventory of its top-selling Chevrolet Silverado is the older model, Sandor Piszar, director of marketing for the brand, said in a briefing last week. GM also has the new Cadillac XT4 and Chevy Blazer SUVs coming this year.

“Barra has done a good job of keeping margins up with flat sales,” said David Kudla, founder and CEO of Mainstay Capital Management in Grand Blanc, Michigan. “GM is also positioned well for the future of mobility and is doing a lot of the right things, but I still think sales will fall off in the U.S. and maybe in China.”

GM projected 2019 adjusted earnings will rise to between US$6.50 and US$7 a share, easily exceeding analysts’ US$5.92-a-share average estimate. The Detroit-based company also said it will exceed the high end of its profit forecast for last year, which was US$6.20 a share.

Belt Tightening

Cost cuts, including the potential closing of five plants in North America this year, will boost 2019 profit by as much as US$2.5 billion, according to the company. Chief Financial Officer Dhivya Suryadevara told reporters the series of restructuring moves GM has planned will pad profit by a total of US$6 billion by 2020.

The belt-tightening GM is doing with its core business coincides with the heavy investment it has planned for plug-in cars and autonomous-driving technology.

The company reaffirmed it’ll cast Cadillac as lead electric-vehicle brand going forward, with the luxury division introducing the first model built off a new dedicated platform for battery-powered autos.