GM looks forward to continued growth, despite big tax charge
General Motors projected another solid year as it ramped up investment in autonomous technology, while also becoming the latest big company to announce a hefty charge due to the US tax reform.
The biggest US carmaker, which has been riding high in recent years thanks to robust sales in China and its home market, said this year’s results would be largely in line with earnings last year, which are expected to set records in some earnings benchmarks watched by Wall Street.
But annual net income will be hit by a $7-billion (R89.5-billion) charge in the fourth quarter due to the accounting of tax-deferred assets.
At a media briefing yesterday, GM executives endorsed the US tax cut package enacted last month and said it expected to benefit the company in the long-term.
“GM had a very good 2017 as we continued to transform our company to be more focused, resilient and profitable,” chief executive Mary Barra said.
“We are positioned for another strong year and an even better 2019.”
The company highlighted a busy year, with planned launches of SUVs and pickup trucks, the backbone of its US sales and a key source of earnings due to high profit margins.
The company also forecast continued strength in China and improvement in South America.
GM shares were up nearly 3% shortly after trading in New York opened.
The carmaker planned to spend $1-billion (R12.2-billion) on autonomous car technology this year, an increase from the $600-million (R7.3-billion) last year.
The company unveiled an autonomous car without a steering wheel last week and has asked the US Transportation Department for approval to move forward with the vehicle.
It has targeted next year for the deployment of autonomous vehicles.
GM president Dan Ammann declined to comment on when rising investment in autonomous technology would earn a return, but said “we do believe there’s a very big business opportunity here”.
Wall Street analysts have praised GM’s moves on autonomous cars, boosting shares of the company.
US car sales overall declined last year for the first time since the financial crisis, although sales remained solid amid an improving employment market and higher consumer confidence.
Headwinds to GM’s earnings this year include costs associated with new vehicle launches and pricing pressure in the US and China, according to GM briefing materials provided for a Deutsche Bank conference later yesterday.
Analysts also view the prospect of higher Federal Reserve interest rates as a risk to US car sales in the coming period.
GM chief financial officer Chuck Stevens acknowledged that tightening bank lending standards and higher interest rates were risks.
But, he said, “overall the economic background is still very supportive and we expect that to continue over the next few years”.
GM divested assets in several international markets last year, including South Africa, and the Opel/Vauxhall brands in Europe.