Earnings Preview: GM’s Performance In This Quarter Is Expected To Be Mixed
General Motors (NYSE:GM) is set to report earnings for the second quarter of fiscal 2016 on Thursday, July 21st. The Detroit based automaker reported a 4.3% year-over-year increase in revenue for the first quarter, with a 240 basis point expansion in gross margin and a 270 point expansion in pre-tax profit margin. It will be difficult for the company to sustain this performance in the second quarter. We expect GM’s top line growth to stall this quarter but its pre-tax margin is likely to remain at around the same level as a result of its strong first half in China. Below, we take a closer look at what we expect from GM’s performance in various geographies.
GM’s Weak Q2 In U.S. Auto Market
In the first half of 2016, the U.S. auto market has only grown by 1.5%, but the performance of its two broad segments — passenger cars and light duty trucks — have been wildly different. While the former has declined by 7.5%, the latter has grown by 9.2%. In a normal year, this would be good news for General Motors, which gets close to 60% of its sales from the latter. But its performance in that market this year has been poor. In fact, for the year so far, sales of all GM brands are down compared to 2015 sales.
Sales of the two flagship GM trucks, Chevrolet Silverado and GMC Sierra, have both declined. The decline pushed GM into an aggressive marketing campaign directly targeting Ford’s F-150 trucks, but that seems to have backfired, as the table below shows.
Record China Sales
China is GM’s largest auto market and accounted for over a third of the company’s new vehicle sales in 2015. In the previous quarter, GM’s China unit earned $560 million in equity income for the first quarter. Much to the company’s relief, its performance in China, the world’s biggest auto market, has been nothing like its performance in the U.S. car market. Sales for the first half of the year have grown by 5.3%, with record sales in the month of June. Moreover, except for Chevrolet sales, which were down 25% in June, sales of all other brands went up. Chevrolet sales were up by 34%, Buick sales were up 10% and Baojun deliveries doubled. In the year 2016, the company is planning to launch 13 new or revamped models in the region as it looks to overcome the slowing economic growth in the region.
Have more questions about auto companies? Click on the links below:
- How Do Automotive Luxury Brands Compare In Their Performance In China?
- How Does GM’s performance vary across geographies?
- How Do Auto Luxury Brands Compare In The US?
- What Is Driving Changes In Ford’s Annual Unit Sales?
- How Much Money Does Ford Make Per Car Sold?
- How Much Has GM Been Investing In Growth Opportunities?
- How Ford’s Unit Pricing Differs Across Geographies?
- How Much Has Ford Been Investing In Growth Opportunities
- Ford’s Overwhelming Dependence On North America
- How Much Profit Does Ford Make Per Unit Sold In Each Geography?
- How Different China Growth Projections Impact Ford’s Bottomline
- How Ford’s Poor Russia Performance Is Obscuring Gains Made In Rest of Europe
- How Careful Targeting of F-Series Sales Helped Ford Boost Its Profits
- How Honda’s Automotive Business Is Faring In Japan
- The Most Significant Trends For Honda Motor Company
- Honda’s Brand Image Is Changing In The U.S.
- How Honda’s Automotive Performance Differs Across Geographies
- How Much Has Honda Been Investing In Growth Opportunities
- How Differing Japan Growth Projections Impact Honda Motor Company
Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for General Motors
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