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  HOME | Business & Economy (Click here for more)

Why General Motors’ Strong Earnings Aren’t the Key Point for Investors

NEW YORK – General Motors reported strong earnings Wednesday morning. That was good news for shareholders, but earnings are secondary for car companies right now.

Autonomous driving, vehicle electrification, and the state of the global economy are what investors want to hear about and those topics will take center stage when GM updates analysts on its conference call later this morning.

Still, the numbers were good. GM’s fourth-quarter sales and earnings topped Wall Street forecasts and the company reiterated its 2019 earnings guidance, originally given on Jan. 11. GM expects to earn $6.75 per share (5.93 euros) in 2019.

GM Financial reported improved performance year over year, too. The auto maker’s lending arm earned $1.9 billion in 2018 versus $1.2 billion in 2017, and credit quality was stable. Loan delinquencies and charge-offs fell year over year.

Finally, Cadillac was the company’s best-performing brand, Caddy sales rose 7.2 percent in 2018.

The back story: In its news release, GM continued to emphasize its transformation.

GM’s autonomous driving unit, Cruise, took in $5 billion in outside investment last year. And like Ford did when it reported earnings, GM gave investors more detail about Cruise’s financial performance. That unit lost $700 million in 2018 and $600 million in 2017. Sales are negligible, so the losses are a good proxy for the amount of money GM spends on developing autonomous vehicles.

The plot twist: GM appears to be zigging when other automakers are sagging. Toyota also reported earnings Wednesday, and management cut their earnings guidance for 2019.

Toyota is cutting costs, as GM is, to prepare for a more complicated automotive future.

Coincident with Toyota’s earnings release, management released a presentation about their plans for “Mobility as a Service” (MaaS). Toyota emphasized car connectivity to improve maintenance, as well as new partnerships with Toyota dealers and ride-hailing companies like Uber Technologies.

Details about MaaS are thin, in part because Toyota recently canceled its US earnings calls. That leaves just the PowerPoint presentation for investors to pore over. The reason Toyota no longer chats with US analysts and investors? No one in America tuned in to Toyota’s report. Go figure.

Looking ahead: The bulk of GM earnings still come from North America. Operating earnings in the US, Canada, and Mexico topped $10.8 billion in 2018. International car operations earned $400 million. That means the health of US automotive markets still matters and GM is hoping new truck models will boost sales in 2019.

It’s the earnings from that business that will fund the future of the company. That future will likely look much different from the automotive industry of today.

 

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