GM's earnings beat, forecast lift shares; supply glut shrinks

[DETROIT] General Motors Co posted stronger-than-expected pre-tax profit for the third quarter before charges related to the sale of its European operations, and shares jumped as GM reaffirmed its full-year earnings outlook and a promise to slash stocks of unsold vehicles.

The results sent GM shares up to the highest levels since its initial public offering in 2010.

The No 1 US automaker said it expects US vehicle sales to remain stable at an annual pace of about 17 million light vehicles in 2017, "and we expect that in 2018 as well," GM Chief Financial Officer Chuck Stevens told reporters on Tuesday.

The US auto industry has been coming off a strong run of sales that culminated in a record 17.55 million units in 2016.

Industry analysts have predicted a slight decline for US new car sales in 2017, driven in part by a flood of nearly-new, low-mileage off-lease vehicles into the market.

GM's share price has risen nearly 30 per cent this year to near record levels, in part as the company has highlighted efforts to put self-driving cars on the road. However, spending on autonomous vehicles and ride services amounted to just US$150 million in the latest quarter, the company indicated in its financial report.

GM's third-quarter results instead showed a continued reliance on sales of high-margin pickup trucks, SUVs and crossovers, much like smaller rival Fiat Chrysler Automobiles NV, which posted a jump in third-quarter profit on Tuesday.

The news came as other industrial heavyweights reported strong profits, including Caterpillar Inc, which blew past Wall Street estimates and whose shares opened at a record high on Tuesday.

GM posted lower revenue for the quarter as it shuttered plants in North America to reduce production and tackle bloated inventory levels, especially of unpopular sedan models as consumers move increasingly to pickup trucks, SUVs and crossovers.

GM had 76 days' supply of unsold vehicles at the end of September, down from 88 days a month earlier and over 100 in the summer. The company's wholesale volumes were down 26 per cent versus the same quarter in 2016.

GM said on Tuesday it was on track to meet its goal of 70 days' supply of vehicles in United States by the end of the year.

GM is taming its inventory problem in the United States in part by laying off about 3,100 temporary and full-time hourly workers, mainly at factories that build compact and midsize sedans. The rapid shift by US consumers to SUVs and pickup trucks in response to low, stable gasoline prices has left GM with too many North American factories tooled to produce low-profit sedans, analysts said.

On a conference call with analysts, CFO Stevens told analysts he expects inventory to hit 800,000 vehicles by the end of 2017, below the 850,000 at the end of 2016.

"I think that's a good launch point when you think about 2018," he said.

But as GM has embarked on a months-long process to trim excess supply, it relied heavily on consumer discounts to sell vehicles. Discounts as a percentage of the average transaction price totaled 13.7 per cent, slightly above the industry average.

Anything over 10 per cent is considered unhealthy for vehicle resale values and unhealthy for automakers in the long term.

GM showed a pre-tax profit in North America despite the steep production cuts. Stevens credited cost-cutting and a shift to higher-profit trucks and sport utility vehicles. The company cut North American production costs by US$2 billion during the first nine months of 2017.

GM posted a quarterly net loss on Tuesday due to charges stemming from the sale of its Opel unit in Europe to France's Peugeot SA.

Detroit-based GM posted a third-quarter net loss of US$2.98 billion, or US$2.03 per share, compared with a profit of US$2.77 billion, or US$1.71 per share a year earlier. Excluding discontinued operations, GM posted a net profit of 8 cents per share.

But excluding one-time charges, the company earned US$1.32 a share, above analyst expectations of US$1.14.

Revenue in the quarter fell to US$33.6 billion from $38.9 billion a year earlier. Analysts had expected revenue of US$32.72 billion.

REUTERS