General Motors doubles profit but faces Brexit headwinds

Despite strong truck sales in the US, Brexit fallout threatens the automaker’s drive to return to profit in Europe.

General Motors reported a rise in overall profit but the Brexit vote is a headwind for its European operations. Picture: AFP Photo/Stan Honda.

General Motors doubled net income and notched record revenue in the third quarter amid strong truck sales in the US, but Brexit fallout threatens to derail the automaker’s drive to post its first annual profit in European operations since 1998.

GM on Tuesday posted net income attributable to common shareholders of $US2.77 billion for the period ended Sept. 30, up from $US1.36 billion reported in the same period a year ago. The Detroit automaker said operating profit excluding one-time factors equalled $US1.72 a share, breezing past Wall Street expectations of $US1.45 a share.

Revenue rose 10 per cent to $US42.83 billion, a quarterly record for the company and substantially higher than analyst forecasts of $US39.3 billion for the period. Shares of GM rose above $US33 in premarket trading, higher than the initial public offering price in 2010.

The results provide a view into GM nearly three years after Mary Barra took over as chief executive and encountered a costly safety crisis that dented earnings and cost billions of dollars to resolve. While missing a Europe profit target will cloud the company’s string of record earnings performances in recent quarters, GM has emerged as one of the most profitable main line car companies in the world.

It benefited from continued strong pricing on big pick-ups and SUVs in North America, its most profitable models, as well as healthier margins on freshly redesigned cars such as the Chevrolet Malibu. A sales surge in China, stoked by a government tax incentive, helped offset pricing pressures from weak demand for small cars and commercial vans.

GM, however, posted an operating loss of $US142 million in Europe, three months after recording its first quarterly profit in the region in five years. GM said currency declines and other industry weakness tied to the UK’s vote to exit from the European Union shaved about $US100 million from its business in the quarter and that it expects the drag to be $US300 million in the fourth quarter.

The Brexit impact likely will derail GM’s longstanding goal of turning a profit on the continent in 2016, the first time since 1998. Other automakers, including the Nissan Motor Co./ Renault SA alliance, have signalled concerns about the UK’s auto industry in recent months.

“Breaking even this year is going to be very, very challenging,” Chief Financial Officer Chuck Stevens said while discussing European operations Tuesday. 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. It levied a 2.5 per cent increase in the UK on Oct. 1.

The automaker maintained its annual operating profit guidance, saying it will finish the year at the higher end of a range that represents annual record earnings.

GM’s broader outlook stands in contrast to the gloomy view from rival Ford Motor Co., which cut third-quarter guidance on expectation of weaker demand and is idling several assembly plants to trim inventories. GM, meanwhile, ratcheted up production 14 per cent in the quarter, according to an IHS Automotive estimate.

Underpinning the strength is Ms Barra’s strategy to focus on sales to retail customers, rather than rentals, an effort to improve vehicle residual values and the image of its brands. The move has cost the company market share, but has led to margins that far exceeded 10 per cent for North America in most quarters.

GM’s operating income in North America rose 6 per cent as average purchase prices across models and brands increased nearly $US1,500 from a year earlier Still, profit margin in North America dipped to 11.2 per cent, from 11.8 per cent, as the automaker sold more cars than a year earlier amid a marketing push for redesigned nameplates like the Chevy Cruze and Malibu.

In China, GM’s operating income was flat at $US459 million. Its profit margin fell to 8.7 per cent, from 9.8 per cent, 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.

GM trimmed losses in South America to $US121 million, from $US217 million, amid continued belt-tightening in the troubled region. GM has raised prices to offset declining volume and said wholesale deliveries rose in Brazil, the region’s largest market.

Dow Jones