Detroit Car Makers Stall on Wall Street
October 25 2016 - 4:20PM
Dow Jones News
By Mike Colias
Investor concerns about slowing U.S. light-vehicle sales, margin
pressure in North America and the fallout from Brexit overshadowed
solid profit growth from two of the biggest American auto makers
Tuesday.
General Motors Co. said third-quarter net income doubled to $2.8
billion compared with the same period a year earlier and revenue
increased 10% to $42.83 billion, a sign the No. 1 U.S. auto maker
continues to benefit from renewed interest in pricier trucks and
SUVs. Fiat Chrysler Automobiles NV, benefiting from the popularity
of Jeep and Ram pickups, swung to a profit during the same period
and raised its outlook.
Shares in GM, however, slipped as Wall Street worried about what
a plateau in the home market will mean for auto makers once known
for consistently producing more products than the public wanted to
buy. GM's stock fell 3.9% in late afternoon trading to $31.69. Fiat
Chrysler was little changed at $6.53.
"I think the market is saying today that this is as good as it
gets for the company in this cycle," Morningstar analyst David
Whiston said, referring to GM. Earlier in the day, speaking to
reporters, GM Chief Financial Officer Chuck Stevens said the U.S.
industry is now in "a plateaued environment" but said he expects
U.S. sales to remain relatively strong -- even if below last year's
record 17.5 million vehicles -- "over the next number of
years."
GM, once hammered by analysts for overreliance on rental-car
sales and profit-sapping incentives, has exercised notable
restraint since Chief Executive Mary Barra took the helm in early
2014. Even as GM's U.S. leadership is eroding -- its U.S. market
share fell to a decadeslong low of 16.6% in the third quarter --
Ms. Barra has bolstered profits by focusing on maintaining higher
prices, backing away from low-margin fleet sales and stepping back
from underperforming regions.
The third-quarter results provide a view into GM nearly three
years after Ms. Barra took over as chief executive and encountered
a costly safety crisis that dented earnings and cost billions of
dollars to resolve. The company has emerged as one of the most
profitable mainline car companies in the world even if missing a
Europe profit target clouds the company's string of record earnings
performances in recent quarters.
Ms. Barra's discipline is headed for a test, however, as many
rivals, including Japanese auto makers, ratchet up pressure on GM's
light-truck and SUVs lineup. Among the top producers of big pickups
in the world and the dominant seller of full-size SUVs, GM could
face pressure to cut prices and trim production if Ford Motor Co.,
Fiat Chrysler or others continue to increase sales incentives.
While core North American operations remained strong in the
third quarter, margins were softer as GM spent more on marketing
and incentives to sell models that aren't as popular as trucks or
SUVs, such as the newly redesigned Chevrolet Cruze smaller
sedan.
GM's European operation, a perennial money loser for GM, adds to
concern due to the U.K.'s decision to leave the European Union. One
of Ms. Barra's most ambitious targets has been delivering the first
profit in Europe since 1998, but $400 million in Brexit-related
costs (primarily due to currency concerns) make reaching that goal
unlikely.
"Breaking even this year is going to be very, very challenging,"
Mr. Stevens told reporters while discussing European operations. He
said the company had been on pace to earn money in Europe before
the Brexit vote and said GM will take "whatever actions necessary"
to blunt Brexit's impact.
The company could implement cost cuts and change the model mix,
Mr. Stevens added. It levied a 2.5% price increase in the U.K. on
Oct. 1.
Mr. Stevens, however, doesn't share investor concern about the
future of the company as a whole. He declined to provide a 2017
profit forecast but said barring any "unforeseen economic
development in the U.S. or China," he said he expects GM's
operating EPS to improve next year. That will follow a record
operating profit GM is projecting for 2016.
In China, GM's operating income was flat at $459 million. Its
profit margin fell to 8.7%, from 9.8%, as stronger sales of its
higher-priced Cadillac and Buick brands were offset by weak car
demand and declining prices on older models. Some analysts expect
sales in China to cool if a sales-tax break on vehicles with
smaller engines expires at year-end as expected.
Fiat Chrysler, which sells less than half as many vehicles as GM
globally, earned EUR606 million ($660 million) in the quarter
compared with a loss of EUR387 million in the same period a year
ago due to charges related to vehicle recalls and a port disaster
in China. FCA relied heavily on Jeep and Ram pickup sales in the
U.S., but it also benefited from its Maserati luxury brand,
purchasing efficiencies and lower warranty costs.
Eric Sylvers contributed to this article.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
October 25, 2016 16:05 ET (20:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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