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GM cuts 2019 outlook as US strike weighs on profits

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General Motors Co on Tuesday slashed its earnings forecast for 2019, saying that a 40-day US labour strike by the United Auto Workers union that brought virtually all of its North American operations to a standstill would cost it around US$3 billion in profits this year.

[DETROIT] General Motors Co on Tuesday slashed its earnings forecast for 2019, saying that a 40-day US labour strike by the United Auto Workers union that brought virtually all of its North American operations to a standstill would cost it around US$3 billion in profits this year.

But GM shares rose 1.6 per cent pre-market trading on the back of a better-than-expected quarterly net profit because of robust US sales of high-margin pickup trucks and SUVs. Wall Street analysts have viewed the strike costs as a tradeoff for three US plant closures agreed to with the union that will boost GM's profitability.

Last Friday, the 48,000 United Auto Workers union members at GM ratified a new four-year labor deal with the Detroit company. The 40-day strike cost GM more than US$2 billion according to analysts.

The Detroit-based automaker reported a 6 per cent increase in third-quarter US sales, led by its highly-profitable full-size pickup trucks, SUVs and crossovers.

Virtually all of the pre-tax profits came from its North American business and its captive finance arm.

In China, where GM reported a 17.5 per cent drop in third-quarter sales, the company's equity income fell 40 per cent to US$300 million.

It was the fifth straight quarterly sales decline for GM in China, the world's largest auto market, where the industry is expecting a second consecutive annual sales drop.

The China Association of Automobile Manufacturers expects a 5 per cent decline for industry sales in 2019, then contracting or growing slowly over the next three years.

Last week, GM's smaller US rival, Ford Motor Co, cut its forecast for operating profit for the year after a disappointing quarter hurt by higher warranty costs, bigger discounts and weaker-than-expected performance in China.

GM said the strike by the UAW had cost it US$1 billion on pre-tax profits in the quarter, or 52 cents per share.

The union wrung higher pay and other benefits from GM as part of the deal to end the strike.

Under the deal, GM will invest US$9 billion in the United States, including US$7.7 directly in its plants, with the rest going to joint ventures.

The No 1 US automaker said the full-year impact of the strike would be around US$2 per share.

GM said it now expected full-year adjusted earnings per share between US$4.50 to US$4.80, down from its previous forecast of US$6.50 to US$7 per share.

The company said it now expected full-year adjusted automotive free cash flow in a range from zero to US$1 billion, down from its previous forecast of US$4.5 billion to US$6 billion. GM's adjusted automotive free cash flow stood at US$2.4 billion at the end of the third quarter.

GM also cut its projected 2019 capital expenditures to around US$7.5 billion from its previous outlook of US$8 billion to US$9 billion.

The automaker posted net income in the third quarter of US$2.3 billion, or US$1.60 a share, down from US$2.5 billion, or US$1.75 a share, a year earlier. Excluding one-time items, GM earned US$1.72 a share. Analysts had expected US$1.31, on average, according to IBES data from Refinitiv. Revenue fell slightly to US$35.47 billion from US$35.79 billion, above analysts' estimates of US$33.82 billion.

REUTERS

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