Earnings Review: GM Caps Off A Strong 2016 With A Strong Fourth Quarter But Challenges Ahead
General Motors (NYSE:GM) announced earnings for the fourth quarter and full fiscal year of 2016 on Tuesday, February 7th. The company reported earnings per share (EPS) of $6.12, roughly flat with last year’s $6.11.
However, the company’s topline expanded by 9.2% as the company’s automotive revenue increased by 7.5% and the financial division’s income increased by 48.1%. Even though, GM’s overall unit sales (excluding China) in 2016 only declined by 2.2% over 2015 sales, its average transaction price increased to $25,740 compared to $23,430, an increase of 9.9%.
In geographical terms, GM’s business was strong across all geographies even though it lost market share in almost all important geographies: U.S., Europe and China. The company’s sales are at a historical peak and it is not really important for the company to be chasing more market share at this point. Instead, it is important that the company focuses on product quality and achieving an optimal sales mix. The contrast between the company’s performance in the U.S. and China under scores this point.
In 2016, GM’s sales increased by 5.8% in China and 11.2% in North America. Together, these two regions make up for nearly 80% of the company’s overall sales. However, there is a huge difference between the company’s sales mix and, hence, profitability in both regions. While GM’s average transaction price in North America increase by 9.3% in 2016 to reach $30,100, in China it fell by 0.9% to just over $12,000. Moreover, GM’s operating margin in North America is around 10.1%, while in China it fell from 9.5% in 2015 to 8.7% in 2016. Additionally, sales in China in 2016 were propped up to a large extent by the halving of the sales tax on vehicles with engine displacement lower than 1.6 liters. In 2017, GM will have to find a way to convince buyers to purchase new vehicles in the absence of the lower sales tax, i.e. at higher transaction prices and this could pose a problem for the company. Nevertheless, these profitability levels are already very high and there are only three ways for the company to increase them further: 1) lower operating costs and increase operating margins; 2) increase the sales of its luxury brand Cadillac; and, 3) sell more SUVs and Pick-up trucks in China.
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
See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology