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GM bucks gloomy earnings forecast trend, shares jump


By Nick and Ajmera

(Reuters) - executives on Friday bucked gloomy forecasts for growth and sent the automaker's shares soaring, promising investors stronger 2019 earnings and outlining ambitious plans for its Cadillac brand to challenge in the growing electric vehicle market.

GM said that despite forecasts of decline in U.S. and passenger car sales, the company expects 2018 profit to exceed Wall Street expectations, and promised higher earnings per share in 2019. Mary Barra, in her presentation to investors on Friday, stood her ground on cost-cutting actions that have provoked threats of retribution from U.S. and outrage from unions and elected officials in the affected states.

"Because of the actions we have been taking for several years, General Motors enters 2019 leaner, more agile and positioned to win," Barra told investors at the presentation.

The market cheered GM's forecast, sending the company's stock up nearly 8 percent.

"We're very much looking forward to the execution of what they've announced," said Tim Piechowski, with ACR Alpine Capital Research, which owns GM shares. Piechowski said GM's core business, its stake in ride services company and its Cruise self-driving car unit are together worth more than the company's recent share price indicates.

Barra also said proposals from officials that GM sell its Lordstown, Ohio, small to Tesla are "moot" because Tesla is "not interested in our GM workforce represented by the UAW," the United Auto Workers union.

As Barra spoke with investors in New York, hundreds of GM workers demonstrated in Windsor, Ontario, across the River from GM headquarters, protesting the company's plan to shut its Oshawa, Ontario, vehicle assembly plant. The UAW is suing GM in connection with U.S. plant shutdown plans, and on Friday called on GM to build its new electric vehicles in the

GM's bullish outlook coincided with new cost-slashing actions by rival , which on Thursday outlined plans to cut thousands of jobs in its European operations and kill an experiment in providing van rides. Ford executives are scheduled to meet with investors next week on the sidelines of the auto show.

Barra and her lieutenants have spent the last two years pushing a strategy to exit unprofitable markets in and developing markets, restructuring money-losing operations in South Korea, and killing in In November it put five North American factories, including four in the United States, on notice for closure, and cut almost 15,000 jobs.

"We are no longer investing in things that don't make money," GM told investors on Friday. "The future is coming fast. We are doing everything we need to do as fast as we can."


That includes making the Cadillac brand "the tip of the corporate spear" on electrification, Reuss said. He outlined plans to launch a new generation of electric vehicles that would be "profitable ... and attainable."

The automaker said Cadillac will become GM's lead electric vehicle brand as the largest U.S. automaker gears up to introduce a new model under that luxury brand to challenge Tesla, a development first reported by on Thursday.

Tesla's market capitalisation is higher than GM's, even though the has never posted a full-year profit.

GM is relying on profit from sales of large pickup trucks and sport utility vehicles in to fund its electrification push. The battle in that lucrative market is intensifying among the Three automakers as sales of small cars in the shrivel. Both GM and have launched revamped pickup trucks in a bid to take more share in the U.S. auto industry's most profitable segment.

Still, GM emphasized to investors on Friday that the large pickup market is a three-company oligopoly protected by "competitive moats." Those include a 25 percent U.S. tariff on imported trucks that predates the Trump administration's trade actions.

GM's biggest market by vehicle sales volume is China, and the economic slowdown in the world's largest auto market has rattled investors across industries. , for instance, last week took the rare step of cutting its quarterly sales forecast, blaming slowing sales in

GM's president, Matt Tsien, told investors on Friday that industry-wide auto sales in that country should stay roughly flat in 2019 after the 2018 decline. GM is taking actions to cut costs, including increasing automation in its Chinese plants and pushing down purchasing costs, he said. Cost-cutting coupled with 20 new or redesigned vehicles that will launch in China this year will sustain the company's profit, he said.

"Overall, GM is in a good position to mitigate the headwinds" in China, Tsien said.

Kyle Martin, with management in Dallas, Texas, which owns GM shares, said GM's macroeconomic assumptions are "not conservative, for sure. For China to be flat, you're going to need some stimulus."

GM, with its Chinese partners, sells more vehicles in China than in the The automaker builds locally most of the vehicles it sells in China.


GM said it expects 2019 adjusted earnings per share in the range of $6.50 to $7.00, above the $5.86 expected by analysts according to IBES data from Refinitiv.

"Bottom line, we believe management just reset the bar higher for earnings and cash flow despite increased macro concerns among investors," wrote in a client note.

The company said it expects adjusted automotive free cash flow in 2019 to come in between $4.5 billion and $6 billion.

Still, Barra faces pressure to lift GM's share price, which has lagged broader market performance. The company has confronted challenges from activist shareholders twice during the past four years.

GM shares rose as much as 9.3 percent on Friday and were still up 7.8 percent at $37.45 in afternoon trading.

(Reporting by Nick and in Detroit and in Bengaluru; Editing by and Matthew Lewis)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Sat, January 12 2019. 01:17 IST