Pricey pickups drive GM profits in Q1

Nora Naughton
The Detroit News

General Motors Co. relied on its pricey new pickups to drive profits in the first quarter of 2019 as the company saved $400 million on restructuring measures.

GM is executing a sweeping restructuring effort that included cutting 15 percent of its salaried workforce earlier this year. GM is also stopping production of slow-selling sedans at five North American plants as part of the restructuring.

Results were mixed. Despite challenges like full-size SUV production downtime, seasonal costs and volatility in China, GM's new pickup trucks delivered strong performance, GM Chief Financial Officer Dhivya Suryadevara said. The automaker led their full-size truck launch with the more popular models of the new GMC Sierra and Chevrolet Silverado, which generated average transaction prices $5,800 higher than the previous-generation crew cabs.

Still, GM saw an 8.3% dip in U.S. pickup sales last quarter — the result of a slower launch of new GMC Sierra and Chevrolet Silverado pickups that favored the more expensive crew cab models at the beginning of 2019.

"Our truck launch strategy is focused on maximizing profitability by first introducing a richer mix of popular high-margin models like crew cabs, followed by regular and double cabs," Barra said. "This strategy is also helping us grow share among higher-priced trucks at the expense of our competitors."

Rival Ford Motor Co. also reported truck-fueled first-quarter profits earlier this month. The Dearborn automaker says its decision to shift from sedans and small cars to larger, more profitable vehicles propelled its earnings beat last quarter.

GM has also taken steps to shrink its sedan offerings in favor of trucks and SUVs. Fiat Chrysler Automobiles NV, which will report first-quarter earnings Friday, was among the first to drop U.S.-built cars from its North American portfolio in favor of Ram trucks and Jeep SUVs.

After taxes, GM's first-quarter net income increased 93% to $2.1 billion on $34.9 billion in revenue. The company's after-tax earnings per share totaled $1.48, up 92%.

The Detroit automaker reported pre-tax earnings per share of $1.41, down 1.4%. Pre-tax earnings were $2.3 billion in the first quarter, down 11.5% from the same quarter last year, amid restructuring activities and softer sales.

GM's stock price closed at $38.95 Tuesday, down 2.65%.

"Overall, we think the stock could see some pullback today given the weak (North American) margin especially on the back of Ford’s strong results," Deutsche Bank wrote in a Tuesday note to investors, "but see material improvement going forward as GM starts to realize the very large savings from its restructuring efforts."

As GM continues its restructuring activities, Suryadevara said the company saved about $400 million in the first quarter. GM has estimated it will save up to $2.5 billion this year via its restructuring effort, which included cutting 15% of its salaried workforce earlier this year. GM also is stopping production of slow-selling sedans at five North American plants as part of the restructuring. 

"While we’ve done much of the foundational work to rightsize the business and our portfolio, we know this transformation is far from over," Barra said. "We also understand what’s at stake — and more importantly the tremendous opportunity that is ahead of us."

GM Cruise LLC, which is aiming to launch a robo-taxi service sometime this year, lost $200 million as the autonomous vehicle development arm continued its aggressive hiring spree. Barra promised updates "later this year" on the launch of Cruise's driverless service. The self-driving vehicle development unit has been quiet as its self-imposed deadline approaches.

GM has said it plans to spend about $1 billion on Cruise this year. The Silicon Valley driverless car operation also attracted billions of dollars in investments in 2018, including $2.25 billion from Japanese investment firm SoftBank Investment Advisers and $2.75 billion from Honda Motor Co. as part of an alliance on future autonomous vehicle development.

GM profit margins of 6.6% slipped 0.6 percentage points from the first quarter of 2018. The company's automotive free cash-flow notched a negative $3.9 billion, down $600 million from a year ago. GM said it had expected the cash flow hit this quarter, and still expects to end the year with as much as $6 billion in automotive free cash.

GM made $1.9 billion pre-tax in North America in the first quarter, down $300 million. The dip was driven largely by planned downtime for full-size SUV production, putting GM behind some 23,000 units as the automaker switched to new models. The automaker's U.S. vehicle sales fell 7% in the first quarter while global sales fell 10.4%.

Amid restructuring in South America and soft sales in China, GM's international business broke even. The company partially credits the stability of its international business to benefits from a restructuring of its Korean business last year.

GM Financial made $400 million in the first quarter, matching the performance from the first quarter of 2018.

Twitter: @NoraNaughton