General Motors Co. on Friday reported a record quarterly, the first-quarter profit on robust sales of its large pickup trucks and crossovers in the United States, as uncertainty surrounds the overall pace of domestic auto sales for the industry.
The results also underscore a shift where U.S. consumers are favoring larger SUVs, crossovers and trucks, instead of cars.
The No. 1 U.S. automaker said it recorded the highest ever profit for a first quarter, including pre-bankruptcy which it emerged from in 2009.
The stellar quarter bodes well for an industry that had disappointing sales in March.
New vehicle sales hit a record of 17.55 million units in 2016, and analysts expect a slight sales decline in 2017.
The results demonstrate that GM will “continue to strengthen the core business, generate the best possible return for our owners and then continue to execute with a huge sense of urgency on the transformative technologies that are really going to allow us to have a leadership position,” Chief Executive Officer Mary Barra told analysts on a conference call.
GM shares were slightly down at $34.51.
U.S. sales of Chevrolet trucks and crossovers rose 3.5 percent and 12 percent, respectively, during the quarter, while GMC truck and crossover sales jumped almost 10 percent.
Pretax margin profit was 8.2 percent, an improvement of 1.1 percentage points from a year earlier.
U.S. sales of less profitable cars, however, fell compared to the first quarter of 2016.
Fiat Chrysler Automobiles NV reported a higher operating profit this week due to soaring SUV sales.
No. 2 U.S. automaker Ford on Thursday reported lower quarterly net profit due to higher commodity, engineering and recall costs, and a drop in vehicle sales.
THE THREAT OF LOWER SALES
Ratings agencies have warned of worsening credit and there are concerns millions of nearly-new leased vehicles will flood the market, depressing used-car values and reducing U.S. automakers’ sales. Some analysts worry automakers are relying too much on consumer discounts to push sales.
Chief Financial Officer Chuck Stevens said while consumer discounts have risen, so have average vehicle prices, which he said matters more.
“Clearly it’s a more competitive market out there,” he said. “But that’s not a surprise given that the industry is plateauing.”
GM said first-quarter vehicle sales rose slightly in Europe, where it has agreed to sell its European Opel and Vauxhall operations to France’s PSA Group. Sales dropped more than 6 percent in the company’s International Operations unit, which is dominated by China.
Overall, almost all of the company’s pretax earnings came from the U.S. market.
“We believe that pricing in North America, coupled with a deterioration in earnings in International Operations, will compromise earnings going forward,” Buckingham Research Group analyst Joseph Amaturo wrote in a client note.
The company was hit last week when the Venezuelan government seized its plant in the industrial hub of Valencia.
Stevens said GM would try to regain access to its assets via legal means. He said the automaker had not been operating normally in Venezuela for 12 to 18 months.
“We don’t want to necessarily exit the country,” he said. “But certainly it’s not an environment you can invest in or run a normal business at this point.”
GM also faces an ensuing proxy fight with Greenlight Capital.
Billionaire investor David Einhorn, who runs the hedge fund, has proposed creating two classes of stock at GM, one that pays a dividend and one that does not, but would be tied to GM’s potential growth.
GM has rejected the plan. Moody’s Investors Service and S&P Global Ratings say such a structure could hurt GM’s credit rating.
Einhorn has nominated three directors to GM’s board.
The company’s net profit rose 33 percent in the first quarter to $2.6 billion, or $1.70 per share, from $1.95 billion, or $1.24 per share, a year earlier. Analysts, on average, expected earnings per share of $1.48.
The company forecast 2017 full-year adjusted earnings per share of $6 to $6.50. Analysts expect earnings of $5.95.