Earnings Preview: GM’s Operations Remain Strong But Profits Might Suffer By Comparison

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General Motors (NYSE:GM) is set to report earnings for the first quarter of fiscal year 2017 on Friday, April 28. The Detroit-based auto maker ended 2016 as the third highest selling vehicle manufacturer in the world and the highest in the world’s two biggest auto markets, China and the U.S.  These two markets are the most important for the company — the former is likely to bring the most growth in sales and profits for the company, while the latter contributes most of the company’s profit currently. Previously, these two regions were followed in importance by Europe, but GM’s operation is Europe will diminish significantly following the sale of Opel to Peugeot for $ 2.3 billion.

Even though GM had an extremely strong year in the U.S. auto market in 2016, its performance in the region suffered in comparison to an even stronger 2015. In 2015, GM’s trucks Chevrolet Silverado and GMC Sierra combined outsold Ford’s F-series pick-up trucks for the first time. This propelled the company to record profitability in 2015 but as Ford’s sales increased in 2016, GM’s profits fell in comparison to 2015’s levels. In the first quarter of 2017, sales of three of the four brands GM operates in the U.S. have fallen on a year over year basis. GMC is the only brand to report a growth in sales — its sales have grown by 10.4% so far — while Cadillac, Chevrolet, and Buick have seen their sales fall by 4.6%, 0.2%, and 7.5% so far this year. Despite this, GM’s overall sales have increased so far this year by 0.9% and its market share has grown to 17.3%.

China is the most important market for GM. In 2016, GM sold close to 3.9 million units in the region or close to 39% of its overall unit sales. However, compared to the U.S., unit prices in China are far lower. GM is trying to increase its presence in the higher margin segments of the auto market with the introduction of more models from Buick and Cadillac, and more SUVs. GM saw its deliveries in China increase by 7.1% over 2015 sales in this fiscal year. This set a new record for the company. The company plans to launch 60 new or refreshed models in China over the 2016-2020 period.  Of these, 13 were introduced last year, 18 are planned in 2017, and 17  in 2018. About 40% of these models are expected to be SUVs and compacts (also called MPVs). In contrast to GM’s brand performance in the U.S., all GM brands saw their sales increase in China. Cadillac deliveries grew by 46%, Buick’s by 19%, Chevrolet grew sales to 525,000+ units, and Baojun, GM’s low cost SUV brand in China, saw its sales grow by 49% to a record 688,000+ deliveries. GM’s SUV sales grew by 45% in 2016, but there is still a lot of room for its model mix in the region to grow. This is why the company is focusing on shifting its overall mix in the direction of MPVs and SUVs going forward.

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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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