GM takes US$7b charge due to US tax reform, sees solid 2018

GM takes US$7b charge due to US tax reform, sees solid 2018

General Motors
A General Motors plant outside Nashville, Tennessee.

DETROIT: General Motors projected another solid year in 2018 as it ramps up investment in autonomous technology, in releasing its earnings report on Tuesday (Jan 16).

The automaker also became the latest big company to announce a hefty charge due to the US tax reform.

The biggest US automaker, which has been riding high in recent years thanks to robust sales in China and its home market, said 2018 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 US$7 billion charge in the fourth quarter due to the accounting of tax-deferred assets. At a briefing with reporters, GM executives endorsed the US tax cut package enacted last month and said it expects 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 in 2018 and an even better one in 2019."

The company highlighted a busy 2018 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 on the vehicles. GM premiered a revamped version of its massive Chevrolet Silverado pickup during this week's Detroit Auto Show.

The company also sees "continued strength" in China and "improvement" in South America.

GM shares were up nearly three percent shortly after trading in New York opened, to US$45.26.

The automaker plans to spend US$1 billion in 2018 on autonomous car technology, an increase from the US$600 million last year.

The company last week unveiled an autonomous car without a steering wheel and has asked the US Transportation Department for approval to move forward with the vehicle. It has targeted 2019 for 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 in 2017 for the first time since the financial crisis, although sales remained solid amid an improving employment market and higher consumer confidence. Analysts expect a further drop this year.

Headwinds to GM's 2018 earnings 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 Tuesday.

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 in 2017, most notably the Opel/Vauxhall brands in Europe.

Source: AFP/de