F Ford Motor Company

   (FROM THE WALL STREET JOURNAL 2/4/16) 
   By Gautham Nagesh and Christina Rogers 

General Motors Co.'s fourth-quarter profit surged on growth in China and the U.S. in a sign of its continued strength while crosstown rival Ford Motor Co. said it plans to trim jobs and make product cutbacks in Europe to bolster paper-thin margins there.

GM reported $6.3 billion in net income in the final three months of 2015, up from $1.1 billion a year earlier. The latest quarter included a $3.9 billion noncash gain reflecting its improved fortunes in Europe, as accounting rules allow GM to carry forward prior losses to offset future taxes in some countries.

The Detroit auto maker's operating profit for 2015 was a record $10.8 billion, up from $6.5 billion a year earlier. In contrast, Ford on Wednesday said it would offer a buyout to most of its 10,000 salaried workers in Europe. Like GM, Ford reported strong earnings in North America, contributing to its own record full-year operating profit of $10.8 billion.

Investors aren't finding a lot to cheer about at either company. Wall Street remains concerned with economic turbulence in China and worries U.S. auto sales have peaked. GM's stock is down 20% over the past 52 weeks. GM shares were off 2% to $28.93 and Ford lost a nickel at $11.46, both in 4 p.m. New York trading on Wednesday.

Some on Wall Street are bracing for an economic slowdown and questioning whether GM and others can keep the good times rolling. GM's U.S. sales in January were flat amid mixed results from other car makers. Industry inventories and discounts are rising.

Ford turned a profit in Europe last year, but its operating margin was only 1% in the region. On Wednesday, it would cut hundreds of jobs and eliminate some models in the region. It is targeting 6% to 8% margins in Europe.

Ford also said it would stop making some models in the region and refocus on higher-profit cars and sport-utility vehicles. It didn't say which of its vehicles would be phased out. Ford said it would take an undetermined charge to earnings for the employee buyouts.

"We believe investors should pay closer attention to deteriorating [transaction price] trends, which we expect to accelerate," wrote Joseph Amaturo, a Buckingham Research Group analyst reflecting on GM's earnings.

GM executives contend Wall Street is ignoring fundamental improvements in the U.S. economy and auto industry. They argue U.S. car sales have plateaued, rather than peaked, and predict additional growth.

"We know there's a lot of concern from the capital markets on this, but we don't subscribe to that view," said GM finance chief Chuck Stevens.

GM's 2015 results suggest the auto maker has weathered the worst of a safety crisis that emerged shortly after Chief Executive Mary Barra took over in early 2014. GM settled criminal charges, some litigation and a regulatory probe linked to a defective ignition switch on millions of recalled vehicles for more than $2 billion overall.

GM is benefiting from friendly economic conditions driving consumers to showrooms and investors' concerns are centered on the company's room for growth. GM plans to break even in Europe this year for the first time in years.

GM pared losses in Europe in 2015 to $813 million from $1.4 billion in 2014. GM doesn't plan any further restructuring actions because the company has "the right cost structure now" after removing the Chevrolet brand from the region and leaving Russia, Mr. Stevens said.

At GM, equity income from its Chinese joint ventures during the fourth quarter was $572 million, up from $511 million a year ago. GM cited stronger margins in the world's largest auto market, and retail sales were up more than 14% from a year earlier.

GM reported its fourth-quarter revenue was flat compared with a year ago at $39.6 billion. Its revenue for 2015 was $152.4 billion, down from $155.9 billion in 2014. GM said the decline was primarily due to a foreign-currency exchange impact of $9.3 billion.

(END) Dow Jones Newswires

February 04, 2016 02:48 ET (07:48 GMT)

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