By Mike Colias
The U.S. car companies are slashing capital spending and
delaying some vehicle models to blunt the Covid-19 pandemic's
fallout, a sign of much leaner times ahead in Detroit after a long
stretch of prosperity.
General Motors Co. on Wednesday managed to eke out a $292
million first-quarter net profit thanks to stout U.S. truck sales
but signaled steep losses in the current quarter.
Ford Motor Co. and Fiat Chrysler Automobiles NV earlier reported
heavy first-quarter losses, and all three Detroit companies said
they are either pushing back or scrapping vehicle models to manage
a cash crunch and plunging vehicle demand.
Fiat Chrysler is cutting more than $1 billion in planned capital
outlays this year and building in a three-month delay for many
vehicle launches. Ford cut this year's capital-spending budget by
nearly 10%.
The tighter budgets are already putting the squeeze on
longer-range technology bets, such as electric vehicles and
self-driving cars, that have been widely considered critical to car
companies' strategies for the future.
Ford last week said it was pushing back the launch of a
commercial driverless-vehicle service from next year to 2022 and
has canceled a high-profile electric-vehicle project for its luxury
Lincoln brand.
GM recently said it is pulling the plug on its fledgling
car-sharing unit, Maven.
While executives say they remain committed to funding moonshot
projects, those programs are years away from making money and are
likely to come under more pressure if the pandemic ushers in a
prolonged period of austerity for the car business, analysts
say.
GM Chief Executive Mary Barra said the Covid-19 crisis is
forcing the Detroit auto-making giant to make some hard choices,
including on spending priorities that might have seemed important a
few months ago.
"When you really challenge them, you find opportunities to
save," she said during a conference call with analysts, referring
to certain capital outlays.
For the past five years, auto makers have planned their business
around a steady clip of 17 million vehicle sales annually, a
historically strong run fueled by low interest rates and a
recovering economy. Now, research firm IHS Markit expects sales to
finish 2020 at around 12.5 million because of the pandemic, and
many analysts expect next year's sales to remain far below recent
levels.
For now, car companies are focused on restarting their North
American factories, which have been closed since mid-March, leading
to a cash crunch. But even after a successful restart, depressed
vehicle demand could force further cost cutting to adjust
production, analysts say.
GM said it is targeting May 18 to resume U.S. production but
said it would be a gradual ramp up, starting with a single
eight-hour shift across its factories, whereas GM's pickup truck
and SUV plants essentially run around the clock during normal
times.
Fiat Chrysler also confirmed this week most of its U.S. plants
would reopen the week of May 18. Ford has yet to specify a
date.
GM finance chief Dhivya Suryadevara said she expects global
production will be down 60% to 70% in the second quarter, and
expects the company to burn through $7 billion to $9 billion in
cash during the period.
Detroit's auto makers are in better shape than they were heading
into the global financial crisis in 2009, which left GM and Fiat
Chrysler bankrupt and had Ford teetering. Still, their
first-quarter financial results show how quickly cash can evaporate
when production shuts off almost overnight, forcing them to
conserve money in part by delaying or scrapping high-profile model
launches.
The companies have been racing to bolster their cash cushions.
GM, Ford and Fiat Chrysler collectively have added more than $45
billion in cash to their balance sheets, through issuing fresh debt
or drawing on credit lines. Ford and GM both nixed their dividends,
each saving at least $2 billion annually.
Still, company executives say they are trying to be more
conservative in their spending and trim costs where possible,
expecting the second quarter will be even tougher than the
first.
Ford last week canceled plans to develop an all-electric Lincoln
SUV with startup Rivian Automotive. It also postponed the reveal of
its first new Bronco sport-utility vehicle since the mid-1990s and
cited a potential delay in the first redesign in six years of its
F-150 pickup truck, the company's biggest moneymaker.
GM has pushed back some vehicle programs and postponed plans to
reveal an electric Hummer SUV.
Fiat Chrysler is expected to delay by a few months the rollouts
of both a revamped Grand Cherokee SUV and a new Jeep Grand
Wagoneer, a bygone nameplate that the company is resurrecting,
according to research firm LMC Automotive. A Fiat Chrysler
spokesman declined to comment. The Italian-American auto maker said
Tuesday its pending merger with France's PSA Group is moving
ahead.
The companies are pushing back the timelines to conserve cash.
Payments from dealers dried up because vehicle shipments stopped in
March with the factory shutdowns. Meanwhile, the auto makers have
continued paying parts suppliers as bills from the past few months
come due.
Ford said it burned through cash at a rate of more than $2
billion a week after its factories began closing around March 20.
The outflow should ease in coming weeks as supplier payments slow
and payments from dealers resume, executives have said. Fiat
Chrysler went through more than $5 billion in cash during the
quarter.
GM shares rose 4.6% Wednesday after the auto maker said pretax
profit for the January-through-March period, excluding one-time
items, fell 46% to $1.2 billion, citing a $1.4 billion impact from
the pandemic. Pretax earnings per share was 62 cents, better than
analysts' estimate of 40 cents a share, according to FactSet.
Revenue fell 6% to $32.7 billion. GM swung to a $167 million
loss in China, from a $376 million profit a year earlier.
Strong results in North America carried GM's results, led by
sharply higher sales of large pickup trucks and sport-utility
vehicles. GM said sales of its large pickup trucks -- the Chevrolet
Silverado and GMC Sierra -- rose 27% during the quarter, even as
overall U.S. sales slid 7%. GM's traditional truck strongholds,
including parts of the South and Midwest, were less affected by
stay-at-home orders, Ms. Suryadevara said.
"Truck is our strong suit, and that is something we're going to
capitalize on as we restart" the factories, Ms. Suryadevara said
during a media briefing.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
May 06, 2020 15:09 ET (19:09 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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