(This story has been updated to reflect comments made by GM officials during an earnings conference call.)
General Motors earnings more than doubled during the third quarter to a record $2.77 billion, or $1.76 a share, despite slowing demand in the U.S. market.
But the maker says it benefited from a shift in focus away from low-profit fleet sales to the more lucrative retail market, as well as a rebound in the Chinese automotive market.
The Detroit maker handily outperformed Wall Street’s expectations. Excluding a one-time gain, GM earned $1.72 a share for the quarter compared with a consensus forecast of $1.46. In a statement, the automaker credited “robust retail sales in the United States, strong performance in China, growth in wholesale volume and effective cost performance.”
Just how robust the U.S. market was during the third quarter is a matter of perspective. On the whole, new vehicle sales have been stuttering in recent months, suggesting to industry observers that a record recovery after a devastating recession has finally hit its peak.
GM’s sales tumbled 4% during the latest quarter, more than most key competitors. But the automaker willingly allowed its overall volume to slip as it shifted away from the fleet business that has long propped up Detroit’s Big Three. CEO Mary Barra and other company officials have said they want to focus on the more profitable retail side of the business and GM was one of only a handful of makers – a list notably including Honda – to gain market share in that segment.
(Strong sales also boost Daimler’s bottom line. Click Here for more.)
As an indication of how that is working, the average transaction price for a new GM vehicle sold in the U.S. during the quarter rose 16%, year-over-year, to $35,700.
“Without a doubt,” this is paying off “as they move away from daily rental fleets,” said analyst Joe Phillippi, of AutoTrends Consulting.
But he also pointed to GM’s strong success with its latest truck models, including crossovers, big SUVs and full-size pickups “which push a lot of variable profit to the bottom line.”
As a result, North America continued to account for the lion’s share of GM’s overall earnings: $3.5 billion before taxes. But the profit margin for the quarter slipped to 11.2%, down from 11.8% a year earlier.
As for China, GM remains the second-largest manufacturer in that market, behind only arch-rival Volkswagen AG. Chinese sales have also ridden a roller-coaster this year. They’ve begun to show new momentum in recent months, but growth will still likely come in under 10% for the year, the slowest pace in more than 15 years.
That was still enough to help GM’s long-struggling Buick brand set an all-time sales record for the first three quarters of 2016. Buick is now the number two brand in the Chinese market.
(Buick lands in top three in latest Consumer Reports automotive reliability survey. Click Here for the story.)
Worldwide, vehicle sales hit 2.4 million for the quarter, a 3.8% increase. The Detroit maker, which was the world’s largest car manufacturer for three quarters of a century, nonetheless lagged both global leader Toyota and Volkswagen in overall sales during the July to September period.
Even so, GM’s third-quarter revenues hit a new high-water mark at $42.8 billion, a 10.3% year-over-year gain.
The record third quarter performance “reflects our determination to deliver earnings that enhance shareholder returns.”
Shareholders were also rewarded with a quarterly dividend of $0.38 a share, equal to a 4.6% yield, announced on Monday. Investors responded by driving up GM shares more than 1% in pre-market trading.
Not all the news from GM was good for the third quarter. The maker lost $121 million before taxes in South America and $142 million in Europe. GM has been struggling since the beginning of the new millennium to revive its Continental operations and the weak numbers raise concerns that a nascent turnaround may be faltering.
Analyst Phillippi said he was not overly concerned about the European loss “as long as the (longer-term) profitability forecast remains intact.” The third-quarter is normally weak, he said, because of the Continent’s month-long August vacation. But it will be critical to see if the pace picks up in the fourth quarter.
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For her part, CEO Barra wasn’t entirely optimistic. During a conference call with journalists and industry analysts she warned that GM will likely suffer a “negative impact” of about $400 million due to the Brexit vote for the second half of 2016.
Despite that, Barra said GM is maintaining its profit guidance for the year, which would reach as much as $6 a share.
“Every quarter,” she said, “we continue to demonstrate what the earnings power of General Motors is.”
I am a big fan of the Chevy Equinox, I don’t know why, because it isn’t the most visually pleasing, I just like it!
This is an election year. GM is owned by Obama. GM good news is suspect.
Uh, what? The feds haven’t a penny anymore in GM. That’s a fantasy statement with not an ounce of validity. Sorry.
Paul E.