General Motors on Thursday made some robust predictions for earnings, cost-cutting and market share performance and said it would benefit from growing global demand for vehicles, a stronger US economy and a raft of new products, the Financial Times (FT) said on its website.
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According to the FT, GM said it expected to earn $6-$6.50 per share this year, higher than analysts’ expectations of about $5.60, though it lowered its projections for automotive profits to $1.0-1.4 billion amid expectations that it will likely miss its target set for last year of $1.7-$1.9 billion.
The FT said this year’s target is still expected to be higher than last year’s automotive profits, which will be announced later this month – in the third quarter of 2003, GM made about $750 million in automotive profits.
GM reportedly said that analysts’ expectations of $1.22 earnings per share for the fourth quarter was “a reasonable estimate” and expects much of this year’s automotive profit to come from savings achieved after two years of efforts to integrate its purchasing and engineering activities globally. The move is a departure from decades in which GM – and other US carmakers – maintained separate purchasing and engineering departments for each vehicle brand, the FT added.
According to the Financial Times, GM said that it should exceed last year’s 3.5% reduction in material costs this year. Chairman and chief executive Rick Wagoner reportedly said: “The winner in tomorrow’s global auto industry will be those companies that best combine the efficiencies of global scale with a superb focus on local markets. And I like GM’s position.”
The report said he expected GM to increase market share in all its four core markets globally, with entire industry sales rising by 3% to 60 million vehicles this year.
Much of that growth would come from Asia-Pacific, where GM predicted sales would reach 17 million units, a gain of 9% over last year, the FT said. In China, GM predicted sales to grow by 20%, having grown by 30% last year, the report added.
Wagoner reportedly said that, in North America, which is key to GM achieving a “mid-decade” target of $10 per share, a stronger US economy and the rollout of a record number of products would help moderate high levels of consumer financing incentives this year. He said GM understood “mid-decade” to cover a period from this year to 2006, the FT noted.
GM chief financial officer reportedly said that achieving the $10 target would be “very challenging”, partly because pension and healthcare costs had risen significantly since GM unveiled the target almost two years ago. But, according to the FT, he said: “[We] think if the economy behaves itself we believe we have a chance of making those goals. More specifically, this will require attaining a minimum net margin of 2.5% in North America and 1% in Europe.”
Devine also reportedly said GM believed that a trend towards sales of luxury vehicles – that is, better equipped vehicles typically costing over $30,000 – would continue, which would help GM’s Cadillac and Saab luxury brands.
The Financial Times noted that GM is introducing 13 new vehicles and 16 improved existing models in North America this year – a record for any year – which will result in the renewal of 24% of GM’s vehicle line-up by sales volume, compared to 6% last year.
In Europe, GM expects a range of break-even to income of about $100 million, losses in Latin America narrowing and income of $700-800 million in Asia-Pacific, the FT said.
The Financial Times noted that GM said that it had just injected $2.4 billion cash into a trust used to fund the carmaker’s employee retirement healthcare obligations but nonetheless predicted a continued rise in overall healthcare costs, with its healthcare expense for this year at $4.6 billion, up from $4.3 billion last year.
Devine said the recent passage by the US congress of revisions to the country’s medicare health care system “provided some help”, in addition to a new labour contract with the United Auto Workers union, the FT reported.
But he reportedly said GM still saw an increase in healthcare expenses, especially prescription drug usage, adding: “We can’t afford this inflation on a continuing basis.”
The Financial Times said GM’s ambitious goals for profitability come in spite of its prediction that its General Motors Acceptance Corporation financing arm will earn less than last year due to an anticipated drop in the level of mortgage refinancings in the US – GMAC delivered most of the carmaker’s profits last year.
However GM still predicted net income of $2bn this year for GMAC, which would be aided by income from securitisations done in the past two years, the FT report added.
