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VOL. 42 | NO. 43 | Friday, October 26, 2018

Rising prices, margins drive GM's third quarter

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DETROIT (AP) — Shares of General Motors rose more than 6 percent Wednesday morning after the company posted a $2.5 billion third-quarter profit that blew away Wall Street estimates.

The Detroit automaker rode strong prices for much of its model lineup across the globe, especially in the U.S. where it rolled out redesigned versions of its Chevrolet Silverado and GMC Sierra pickups.

"Our discipline came through this quarter," Chief Financial Officer Dhivya Suryadevara said, adding that she believes strong prices are sustainable as GM builds inventory of light-duty pickups and rolls out heavy duty versions. "We feel very confident about the pricing."

The average sale price of a vehicle in the U.S. reached $36,000, $800 more than a year ago and a third-quarter record. CEO Mary Barra said GM will remain disciplined in the fourth quarter while being competitive in every segment.

Even as auto sales started to ebb in the U.S., China and elsewhere, GM said it earned $1.75 per share. Excluding one-time items, the company made $1.87, far exceeding analyst projections of $1.25 per share, according to a survey by FactSet.

Revenue jumped 6.4 percent to $35.8 billion, also topping forecasts. The company was resilient in a declining Chinese market, where it posted record income of $500 million from July through September. And its pretax profit in North America, its most lucrative market, rose 33 percent to $2.8 billion with a profit margin of 10.2 percent.

GM also gave a more optimistic forecast for the full year, saying it expects pretax profits at the high end of its previous guidance of $5.80 to $6.20 per share as it rolls out the new pickups and does its best to battle higher commodity costs.

"We're controlling what we can control," Suryadevara said. "We've had an intense focus on costs."

After falling since June, GM shares jumped 6.4 percent Wednesday to $35.69.

The strong profit from GM's China joint venture came even with a budding tariff war with the U.S. and uncertainty over sales in the world's largest auto market.

GM's global retail sales to individuals, on the other hand, dropped 15 percent during the quarter, to 1.98 million vehicles. But sales to dealers, the point at which GM books revenue, rose 4.5 percent, to 1.13 million.

GM was hit once again by costs associated with its giant recall for faulty ignition switches. The company posted a $440 million charge as it updated estimated costs for legal claims.

A year ago, GM posted a $3 billion net loss due to a $5.4 billion charge for selling Opel and Vauxhall to France's PSA Group.

Suryadevara said GM expects tariff-driven commodity price increases to cost the company $1 billion this year, $400 million in the third quarter alone. The Trump administration has imposed 10 percent tariffs on imported aluminum and 25 percent on steel, raising GM's costs. But other commodity prices have fallen and GM is mitigating the impact with cost cuts and higher vehicle prices, Suryadevara said.

GM reported that its Cruise Automation autonomous vehicle unit spent $200 million during the quarter and said spending likely will rise as the unit heads toward rolling out a self-driving ride-hailing service sometime in 2019. She conceded that moving toward fully autonomous driving is "really hard" but said GM continues to make progress.

The company's surprising performance contrasts with crosstown rival Ford, which saw profits plunge 37 percent during the quarter to $991 million on falling U.S. and Chinese sales.