GM’s profits take a hit in first quarter

Nora Naughton
The Detroit News

General Motors Co. took a significant hit in the first quarter of 2018 amid planned downtime for pickup production and an aggressive restructuring effort in South Korea.

GM on Thursday reported net income of $1.05 billion, down 59.8 percent from last year, and $2.6 billion in operating profits in the first quarter of 2018, down 26.6 percent from the same quarter in 2017.

“Results this quarter were in line with our expectations with planned, lower production in North America related to the transition to our all-new Chevrolet Silverado and GMC Sierra,” CEO Mary Barra said in a statement. “We are on plan to deliver another strong year in 2018.”

GM reported earnings per share of $1.43 in the first quarter, down 18.3 percent from the same quarter in 2017.

The Detroit automaker reached a final agreement with its South Korean labor union just before it reported first-quarter earnings when the union ratified a labor agreement that GM executive vice president and CFO Chuck Stevens said will generate between $400 and $500 million in annual cost-savings when coupled with a planned closure of its Gunsan plant next month.

GM said it took a $942 million pre-tax charge in the first quarter related to asset impairments and termination of benefits in South Korea.

GM Korea is also in a “preliminary agreement” with the Korean Development Bank, which holds a 17 percent stake in the company. Under the agreement, KDB would provide $750 million in funding to help support capital spending and future product programs in Korea. Stevens said that agreement is expected to finalize in a matter of days.

“All of these (efforts) will support a viable, sustainable business in Korea,” Stevens said.

The Detroit automaker is expecting its still-fresh crossover lineup to keep margins high early in 2018 while it awaits the launch of its two bellwether pickups later in the year.

GM’s pre-tax earnings in North America totaled $2.2 billion, with 8 percent margins reflecting planned downtime to support new truck launches later in the year, the automaker reported. Its international business, including China, made $200 million in the first quarter, in line with 2017 results.

GM’s first-quarter results follow a strong 2017, in which the Detroit automaker’s full-year pre-tax profits of $12.8 billion matched its record-breaking 2016 results. On the whole, GM took $3.9 billion loss in 2017 as it adjusted to new tax laws and took one last hit from the sale of its money-losing European business to PSA Groupe SA in France. GM took a $6.2 billion hit on the year in its sale of Opel-Vauxhall, combined with a $7.3 billion non-cash write-down of its tax assets in the fourth quarter to drive the annual loss.

The Detroit automaker is continuing to cut costs abroad this year with its restructuring in South Korea.

In the U.S., GM is doubling-down on high-margin products in 2018, preparing for the launch of the 2019 Chevrolet Silverado and the 2019 GMC Sierra-Denali pickup trucks.

GM’s results follow Ford Motor Co., which made $1.7 billion in the first quarter of 2018. Ford also announced a plan to trim $11.5 billion in operating costs, reduce spending by $5 billion from 2019 to 2022, and cut its car lineup to just the Mustang and all-new Focus Active crossover as part of its first quarter earnings report Wednesday.

Despite this announcement by Ford and previous moves by Fiat Chrysler Automobiles NV, which is out of the passenger car game altogether, Barra said the sedan segment is still “significant” for GM.

“We think there’s an opportunity, because we’ve made the investments, we need to deploy little-to-no capital as we move forward,” she said on a conference all with investors. “We have worked on each of our car lines over the last year to make sure that we’re driving efficiencies across all areas of the business that supports those, so I think what you’re going to see us do is very efficiently play in a segment that although is declining, there still is opportunity.”