GM net income drops 42% in second quarter to $1.66B

Melissa Burden
The Detroit News

General Motors Co. on Tuesday said record first-half earnings will slow in the second half of 2017, hampered by 13 weeks for retooling at U.S. truck and crossover factories, and as it works to reduce bloated car inventory. It said the third quarter would be its weakest financially of the year.

The Detroit automaker reported net income of $1.66 billion in the second quarter, down 42 percent from a year ago, primarily driven by a $770 million loss from discontinued European operations.

GM plans to trim production by 150,000 vehicles in the second half of the year compared to the first six months in 2017 as it works to cut U.S. inventory from 105 days of supply at the end of June to about 70 days by the end of the year. GM Chief Financial Officer Chuck Stevens noted more downtime for trucks is slated for 2018 as the company prepares to launch the next-generation full-size pickups.

Despite slowing U.S. sales and challenges, Stevens reaffirmed the company’s guidance for 2017 for the year of earnings per share of $6 to $6.50 a share — and for revenue, profitability and profit margins to be better or equal to 2016 results.

“Our plan and the execution of the plan is very much on track despite a more challenging environment,” Stevens said.

Taking downtime for trucks, its most profitable vehicles, “will definitely hurt” profits, Morningstar analyst David Whiston said. But GM indicated that fourth-quarter earnings would bounce back, Whiston said, likely aided by new and more profitable crossovers.

GM’s full-size pickup production in North America is predicted to fall by 15 percent in 2018 vs. this year, according to IHS Markit.

But analysts say GM has plans for continued solid results next year, too.

“Management noted that North America operations are proving resilient through various industry pressures, and that sustaining about 10 percent margins should be doable under accommodative macro conditions next year ... and some production downtime for upcoming truck launches,” Itay Michaeli, an analyst with Citi Research, said in a note to investors Tuesday.

While its profit centers remain strong in China and North America, GM saw North American earnings slip slightly to $3.48 billion pretax from a year ago as sales to dealers dropped by 110,000 from a year ago due to GM’s strategy to cut back rental car sales and from sales of the Chevrolet Malibu and Chevrolet Cruze. Stevens would not comment on reports GM is considering cutting a number of slow-selling sedans from its U.S. portfolio, but he told reporters that GM would continue to cut car production as necessary to meet demand.

The automaker, which plans to sell its European operations to French automaker PSA Group by the end of the year, said net income from continuing operations that do not include Europe totaled $2.4 billion in the quarter. That’s down 11.3 percent on a comparable basis from the same three months a year ago.

The company said its earnings per share totaled $1.60. When factoring in special items totaling about $650 million including restructuring in India and South Africa, an ignition switch legal charge and charges related to ending operations in Venezuela, GM’s earnings per share totaled $1.89. That beat analyst estimates of $1.69 a share. A year ago, earnings per share totaled $1.81, or $1.86 a share when factoring in special items.

Revenue from continuing operations totaled $37 billion, down 1.1 percent from a year ago.

“Our recent restructuring actions will allow us to deploy capital and resources to higher return opportunities, such as refreshing our profitable global SUV and U.S. full-size truck portfolios and our global emerging market vehicle program,” GM Chairman and CEO Mary Barra said in a conference call. “We’ll also continue the growth of GM Financial and our very profitable aftersales.

“We’ll continue levering our connectivity leadership through OnStar and transforming Cadillac in the global, high-margin luxury segment. We’re also investing in transformative technologies around electrification, autonomous technology, connectivity and shared mobility services.”

The company said its adjusted pre-tax earnings totaled $3.7 billion in the quarter, down slightly from a company record at $3.8 billion a year ago due mostly to wholesale vehicle declines in North America. GM said income in China totaled about $500 million.

GM shares closed Tuesday at $35.57, down 0.7 percent. GM, effective with the second quarter, is reporting only its continuing operations, meaning European operations are no longer included due to GM’s pending sale of its Opel/Vauxhall brands and European GM Financial business to French automaker PSA Group. The year-over-year comparisons also have been adjusted only to include continuing operations.

The company in a regulatory filing Tuesday said it expected to take a special charge of $5.5 billion to $6 billion related to the sale, up from previous estimates as low as $4 billion earlier this year due to more costs with the sale such as contract cancellations.

During the second quarter, GM announced it would stop selling vehicles in India and would sell its South Africa operations to Isuzu Motors Ltd. It’s among a series of moves the automaker has made under Barra’s watch to retreat from unprofitable regions.

Regionally, GM improved its performance from the same quarter a year ago in its International Operations, South America and with record results from GM Financial.

U.S. sales for the Detroit automaker through the first half of the year are down 1.7 percent. And sales in China, GM’s largest sales market, also are down 2.5 percent through the first half of 2017 compared to the first six months of 2016.

Ford Motor Co. on Wednesday will release its second-quarter results and Fiat Chrysler Automobiles NV on Thursday. Telsa Inc. releases its results Aug. 2.

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GM hires new data chief

General Motors Co. has hired a chief data officer — a new position — to help the company strengthen data science and analytics of customer, corporate and business data.

GM Chairman and CEO Mary Barra announced the hire during conference call with analysts and investors Tuesday.

A. Charles Thomas, who most recently was chief data officer and head of enterprise data and analytics at Wells Fargo, joined GM last week. He will report to GM North America President Alan Batey.

Automakers and suppliers are working on how to utilize the huge amounts of data cars today and into the future will generate.

Barra said GM will be able to provide over-the-air software updates on its vehicles by 2020. She said GM is studying how it can use data from its vehicles to aid customers and also as a business-to-business revenue opportunity to GM. “The opportunity is there,” Barra said.

She said GM is testing an active health management system that will assess different vehicle components and alert customers ahead of time if they need to be fixed. The system would alert them for their vehicle to be fixed and could even unlock the doors for the fix using OnStar and lock the car when it’s done.

“That’s capability that is near-term that have and will be deploying,” Barra said.

Melissa Burden