Trucks

GM Makes Almost All of Its Money on Truck Sales

Loaded Chevrolet Silverado and GMC Sierra pickups, SUVs, crossovers, and a 10.7% profit margin in North American have General Motors executives dancing in the halls of Detroit’s silver silos. The news helped spike GM shares 3.3% to over a one-year high according to Reuters.  “The alarm may be softly ringing for GM to finally reawaken from its trading range slumber,” says Evercore ISI analyst Chris McNally.

McNally’s comment concerns Wall Street’s indifference to GM stock. This, in spite of GM’s vast amounts of investment, new products, restructuring, and generally strong sales.

GM forecasts now call for 2019 earnings per share of between $6.50 and $7. Analysts are softening their own expectations to $6.62 per share.

Silver Lining

On the upbeat news, GM executives are trumpeting even better numbers in the months ahead as production and marketing efforts increase for new Silverado/Sierra trucks, and new diesel-powered heavy-duty trucks and SUVs coming in the next few months.

“We are beginning to demonstrate the earnings power of our full-size truck business,” says Chief Executive Mary Barra. On another note, she added GM’s willingness to partner with other companies on electric car development.

Problems in China

All of this good news flies in the face of challenges in China, the world’s largest vehicle market. As GM vehicle sales continue to slow there, expectations are for a disappointing performance overall. In fact, Ford and Daimler AG have already forecast lower profits ahead of their sales figures worldwide.

With the sales picture in China softening a bit to a 12% decline, that’s still better than 1Q when sales dropped 17.5%. GM says China sales will remain weak through year-end with expected gains once new SUVs are introduced there in 2020.

Chinese equity income fell to $235 million dropping from $592 in 2Q 2018. However, it is expected to match the $611 million gained in the first half of 2019.

Interestingly, Fiat Chrysler Automobiles new Ram pickups outsold Chevy trucks in 2Q 2019. Strong Ram performance is suggesting FCA will stick with their full-year profit forecast for 2019. In spite of their lower truck numbers and sales falling 1.5% in 2Q, GM is making handsome profits on those high-optioned Silverados and Sierras.

Restructuring

The restructuring that included the controversial closing of five North American manufacturing plants and cutting 15,000 jobs has netted GM $1.1 billion in savings for 2019.

The reported $2.41 billion for 2Q matches last year’s 2Q $2.39 billion. Converted, those numbers represent $1.64 per share exceeding analyst’s predictions of $1.44 per share based on IBES data from Refinitiv. And GM’s reported $36.1 billion also exceeded analyst’s forecast of $35.98 billion for 2Q.