Trucks Shield Detroit Auto Makers From Global Headwinds - 3rd Update
August 01 2019 - 4:51PM
Dow Jones News
By Mike Colias
Sales of big pickup trucks to American buyers are helping
Detroit's car companies counter a sputtering global auto
market.
General Motors Co.'s shares rose Thursday, before pulling back
with the broader market, after the auto maker forecast an
acceleration in profits through the rest of 2019, which executives
said will be driven by an overhauled line of its biggest pickup
trucks.
GM's profit from North America climbed 13% in the second
quarter, and the company posted a 10.7% operating margin in the
region -- the highest in two years -- helping offset weak China
sales that more than halved its quarterly income from that
market.
Fiat Chrysler Automobiles NV also surprised investors this week
with an upbeat outlook after its Ram truck brand and Jeep business
drove higher margins and operating profits in North America,
leading to flat second-quarter operating profit overall.
GM and Fiat Chrysler solidified their profitability lead in
North America over Ford Motor Co., whose operating results in the
region slipped in the second quarter. Ford's top-selling
pickup-truck franchise helped offset losses in China and South
America, but higher-than-expected costs and a disappointing profit
outlook for the year sent shares tumbling last week.
Fiat Chrysler posted an 8.9% operating margin, or operating
profit as a percent of revenue, in North America in the second
quarter, higher than Ford's 7.1%.
Big pickups give the Detroit car makers a vital profit lifeline
as pressures build in the U.S. and abroad, especially in China, the
world's largest car market. The three companies account for more
than 90% of U.S. sales of the big rigs, which analysts estimate
generate the bulk of global profit at GM and Ford and a substantial
portion of the bottom line at Fiat Chrysler, which also leans on
Jeep profits.
The market for big pickups is "one of the few oligopolistic auto
segments with true pricing power," Credit Suisse analyst Dan Levy
recently said.
The three Detroit companies have cut most of their car lines to
focus on pickup trucks and sport-utility vehicles. They have been
rolling out new models that are commanding higher prices. GM's
Chevrolet Silverado and GMC Sierra left showrooms for about $45,500
on average in the second quarter, up 6% from a year earlier.
"You're really starting to see the earnings potential of our
truck franchise," GM finance chief Dhivya Suryadevara told
reporters Thursday. She said the launch of more redesigned truck
models will propel GM's results in the second half of the year. The
company stood by its full-year earnings guidance of $6.50 to $7 a
share.
Ms. Suryadevara said GM is confident the truck market can remain
strong. There is more pent-up demand for pickup trucks, which
buyers generally hold on to longer than cars, and commercial
customers provide a base of demand, she said.
GM's operating profit for the April-to-June period fell to $3
billion, or $1.64 a share, better than the average analysts'
estimate of $1.44 a share. The largest U.S. auto maker by sales
said revenue dropped 2% to $36.1 billion.
GM warned China's car market will likely continue to struggle.
Industry sales there fell 12% in the first six months of the year,
and GM's sales sank 15%.
Ms. Suryadevara called the China market volatile, with pressure
on sales and pricing. She said GM expects profits from the country
to hold steady in the second half of the year as it introduces new
sport-utility vehicles that carry higher margins.
Second-quarter income in China sank 60% to $235 million. GM said
China income in the last two quarters of this year should roughly
match the first two, putting it on pace for about $1.2 billion
there, down from $2 billion last year.
Elsewhere, earnings have slumped at the German luxury car
manufacturers as trade tensions, slowing China demand and higher
costs for developing electric cars take their toll.
BMW AG on Thursday reported its second-quarter net earnings
tumbled 29% over the same prior-year period. Daimler AG, the maker
of Mercedes-Benz cars, also said it would accelerate cost-cutting
efforts in the second half after reporting the company's first
quarterly lost in a decade in the April-to-June period.
Nissan Motor Co. said last month that it would cut 12,500 jobs,
or 9% of its global workforce, after troubles in the U.S. drove a
sharp decline in its second-quarter operating profit.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
August 01, 2019 17:36 ET (21:36 GMT)
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