GM keeps profit forecast despite headwinds
Used car prices are falling, United States sales are off to a slow start, car inventories are growing and interest rates are on the rise. Still, General Motors is sticking to its profit forecast.
Chuck Stevens, GM's chief financial officer, told industry analysts Thursday that the company is optimistic for a number of reasons: The sale of its European unit will save GM money, it predicts US sales will rebound later in the year, and expects new SUVs to fetch higher prices.
In January, the Detroit automaker predicted pretax profits for the year from US$6 to US$6.50 per share, compared with US$6.12 that it made in 2016.
Last month, GM unloaded its European Opel and Vauxhall brands to French carmaker PSA Group for roughly US$2.33 billion (€2.2 billion), retreating from the world's third-largest auto market after almost two decades of futile efforts to make money.
Stevens said the sale, which should close by the end of this year, cuts a US$400-million loss, and also frees up US$1 billion in capital spending that went towards European-centred products. GM also avoids future costs of complying with stringent European environmental regulations, Stevens noted.
Although the US auto market slowed in the first quarter, GM expects sales to recover and end 2017 at around 17.5 million, close to last year's record of 17.55 million, the CFO said. Stevens conceded that incentives such as low-interest loans and rebates are on the rise, but also said average sale prices for GM vehicles are rising, too.
Inventories grew to a 90-day supply of cars and trucks at the end of March. That should fall to a 70-day supply by the end of the year, Stevens said. With thousands of newer cars coming off leases, GM will manage the supply by selling them as certified pre-owned vehicles and may even try to work deals with ride-sharing companies Lyft and Uber, he said.
GM has the oldest crossover SUV portfolio in the industry, forcing it to discount the vehicles, Stevens said. But that will change this year with the rollout of the new Chevrolet Equinox and larger SUVs such as the GMC Acadia, Chevrolet Traverse and Cadillac XT5.
"As we exit this transition to the new portfolio, we'll see a recovery in transaction prices with lower incentive spending as we launch the new products," Stevens said on a conference call.
The company also will shut down truck plants in the third quarter to prepare for the launch of a new full-size pickup truck in 2018, Stevens said.