General Motors' Conservative Approach Pays Off as Earnings Exceed Expectations

Strategic Insights -

General Motors' corporate culture can be summarized as a tale of two cousins - the optimistic Ford Motor Company and the Chrysler Corporation. While Ford and Chrysler have been predicting robust sales this spring, General Motors, widely teased for its relatively gloomy outlook last year, has taken a more cautious approach, focusing on cost-cutting measures and improving manufacturing productivity. As a result, General Motors reported an 18% gain in earnings, exceeding analysts' expectations.

Key Takeaways:

  • General Motors' conservative production schedule paid off, with an 18% gain in earnings exceeding analysts' expectations.
  • The company's average incentive per vehicle actually fell in the three months ending June 30.
  • General Motors has the highest estimate for total sales this year: 15.3 million cars and trucks, just down from last year's 15.4 million.
  • Chrysler, on the other hand, had predicted 16.8 million sales in 1996, but now is calling for 15.5 million.
  • General Motors has continued to focus on cutting costs in its factories and in its purchases of parts and materials.
  • Despite a falloff in sales, profit margins in General Motors' core North American automotive operations continued to widen.
  • Investors seized on the distinction between the companies, bidding General Motors stock up $1 on the New York Stock Exchange.

Statistics:

  • General Motors' earnings for the quarter rose to $2.3 billion or $2.39 per share, compared with $1.9 billion last year, or $2.23.
  • The company's revenues rose 9.3 percent to $44.1 billion.
  • Ford reported its profits slipped 8.2 percent, to $1.57 billion.
  • Chrysler reported its earnings fell 85.9 percent in the quarter, to $135 million.
  • The company's profit margins in North American automotive operations widened significantly.
  • General Motors' inventory level is higher than its competitors, which could portend higher rebates and other incentive costs in the third quarter.

Sources:

  • "The New York Times", no date or publication date available.
  • J. Michael Losh, General Motors' chief financial officer.
  • Phil Fricke, auto industry analyst at Prudential Securities in New York.
  • Nicholas Lobocarro, auto analyst at S. G. Warburg & Company.
  • Bloomberg Business News and Zack's Investment Research.