GM sees best first quarter profit ever


By Greg Gardner - Detroit Free Press



DETROIT — General Motors capitalized on Americans’ willingness to pay higher prices for new vehicles to earn $1.95 billion in the first quarter, more than doubling last year’s first-quarter haul and exceeding Wall Street expectations.

On an earnings-per-share basis _ a number closely watched by investors _ GM made $1.26, well above the $1.00 consensus estimate of more than 12 analysts and enough to make this the company’s best first quarter profit ever.

But on Wall Street, it was another Rodney Dangerfield kind of day for an automaker that expects to post a record pre-tax profit this year.

GM shares rose above their November 2010 initial public offering price of $33 briefly Thursday morning before slipping to $32.60 in the afternoon.

Even as industry-wide new vehicle sales in the U.S. remain on pace to break last year’s record of 17.5 million, many investors remained unexcited and expressing worry the industry’s cycle is near its peak.

There also is concern about how profitable GM’s investments in ride-hailing, car-sharing and autonomous vehicles will prove.

“The best thing we can do is continue to execute our short-term and long-term strategies, put the results on the board, continue our focus on the future with our investments in Lyft ($500 million) and Cruise Automation (an autonomous vehicle technology firm), and our share price will reflect that over time,” said Chuck Stevens, GM’s chief financial officer.

The automaker’s total revenue was also better than expected, rising 4.5 percent to $37.3 billion, despite the negative impact of a strong U.S. dollar and a 2.5 percent decline in the number of vehicles sold worldwide.

Globally, GM’s pre-tax profit margin was 7.1 percent. In North America, it was 8.7 percent, down slightly from 8.8 percent a year earlier and below the 10-11.8 percent range reported over the last nine months of 2015.

Stevens said the North American profit margin was reduced by $300 million in restructuring costs, most of which were related to an early retirement program negotiated last fall with the United Auto Workers union.

“We’re growing where it counts, gaining retail market share in the U.S., outpacing the industry in Europe and capitalizing on robust growth in SUV and luxury segments in China,” CEO Mary Barra said in a statement.

While North America provided the overwhelming share of worldwide profits _ $2.3 billion before taxes _ GM improved results in all global regions, nearly breaking even in Europe _ $6 million pre-tax loss, compared with a $239 million loss in the first-quarter of 2015.

Back in the U.S., GM has intentionally pulled back on sales to daily rental fleets, a segment of the market in which automakers sometimes boost their market share. But it did fairly well in retail sales, which tend to generate larger profit margins.

The increased profitability came on a smaller U.S. market share of 16.4 percent, down from 16.9 percent in the first quarter of 2015 and a fraction of the 51 percent it held in 1962 or the 31 percent it had in 1997.

Also bolstering profit margins were consumers’ growing preference for larger vehicles, including pickup trucks and full-size SUVs, as well as the introduction of redesigned models such as the 2016 Chevrolet Malibu, which, like the other new models, carries a higher sticker price than the model it replaced.

The average GM vehicle sold or leased in the U.S. during the quarter was priced at $34,600, about $3,000 higher than the industry average.

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By Greg Gardner

Detroit Free Press

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