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GM focus on sales to actual consumers paying off for profits

Tuesday, July 25, 2017 - 21:29

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General Motors's strategy of shunning discounted sales to rental-car companies to focus on more profitable deliveries of pickups and SUVs to US consumers paid off ahead of a challenging second half to the year.

[SOUTHFIELD, Michigan] General Motors's strategy of shunning discounted sales to rental-car companies to focus on more profitable deliveries of pickups and SUVs to US consumers paid off ahead of a challenging second half to the year.

Adjusted earnings of US$1.89 per share in the three months ended in June beat analyst estimates of US$1.70 a share. The largest US automaker sold a richer mix of sport utility vehicles and trucks to retail buyers and cut costs during the quarter in North America.

Chief executive officer Mary Barra has pushed GM to pivot away from a longtime reliance on bulk shipments of discounted sedans to rental-fleet companies like Hertz Global Holdings and Avis Budget Group.

Improving the health of its business beneath the surface is crucial because the US market is shrinking after years of growth and more than a dozen GM factories are temporarily shutting down to prepare to make fresher pickups and SUVs.

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"Second-half production is going to be lower than the first half, because of the downtime that we anticipated," chief financial officer Chuck Stevens told reporters at GM's headquarters in Detroit.

"Second-half earnings are going to be lower than the first half, which is totally consistent with the guidance that we provided earlier this year."

GM shares slipped 0.3 per cent to US$35.70 as of 8.42am Tuesday, before the start of regular trading.

The stock has advanced 2.8 per cent this year, trailing the 10 per cent jump in the benchmark S&P 500 Index.

The automaker has scheduled 13 weeks of downtime in the second half of this year at plants that will be retooled for updated models, including its all-important full-size pickups, the Chevrolet Silverado and GMC Sierra.

GM will build about 150,000 fewer vehicles in North America in the second half than in the first six months of the year, Mr Stevens said.

The downtime at factories should help reduce GM's elevated inventory levels.

The company started the second half of the year with an excess of 100 days' worth of vehicle supply on dealer lots in the US, about a month more inventory than the industry average.

GM also has cut a shift at four passenger-car assembly plants, and a fifth is scheduled for September. Weak demand for sedans like the Chevrolet Malibu has undercut total industry sales, which dropped each of the first six months of the year.

"It's been tough for GM to get any love amid the cycle talk," Brian Johnson, a Barclays analyst, wrote in a note to clients Monday.

"Even despite positive headlines, investors won't give GM much credit."

As GM curtails less profitable aspects of its business at home, Ms Barra also has led a years-long effort to exit foreign markets where the company fails to earn consistent profit.

For the first time, GM reported European units including the Opel and Vauxhall brands as discontinued operations.

The company expects the sale of those operations to PSA Group will close before the end of the year and that costs of the transaction will contribute to a special charge of about US$5.5 billion.

In May, GM said its Chevrolet brand will exit the India market and that its operations there will refocus on exports.

Isuzu Motors is taking over GM's manufacturing operations in South Africa, adding to departures under Ms Barra from the Venezuela and Russia markets.

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