GM offers buyouts to 18,000 workers amid strong profits
As General Motors reported a healthy $3.29 billion third-quarter profit, the Detroit automaker ramped up its cost-cutting efforts by offering buyouts to 18,000 white-collar workers in both the United States and Canada.
The company, while acknowledging it's in good shape now, said Wednesday it needs to be smaller to prepare for tougher times that might be ahead as it continues to get ready for a future of electric and autonomous vehicles.
"Even with the progress we've made, we are taking proactive steps to get ahead of the curve by accelerating our efforts to address overall business performance," GM said in a statement. "We are doing this while our company and economy are strong."
The earnings and buyout news drove GM shares higher in Wednesday afternoon trading. The stock was up 8.6 per cent to $47.94, after mostly falling since June.
Buyout offers were made Wednesday to salaried workers in North America with 12 or more years of service.
Eligible employees will have until Nov. 19 to decide if they want to take the voluntary severance, said Jennifer Wright, communications director for General Motors Canada in an email to CBC News.
GM spokesperson Patrick Morrissey wouldn't say whether the company has a target number for employee reductions, nor would he say if there will be layoffs if too few employees take the buyouts.
"We will evaluate the need to implement after we see the results of the voluntary program and other cost reduction efforts," he said.
The company has 50,000 salaried workers in North America.
The offers came as GM's earnings surprised Wall Street by riding 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.
Vehicle prices up
"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.
The average sale price of a GM vehicle in the U.S. reached $36,000 US, $800 US more than a year ago and a third-quarter record.
Even as auto sales started to ebb in the U.S., China and elsewhere, GM said it earned $2.30 per share. Excluding one-time items, the company made $2.46, far exceeding analyst projections of $1.64 per share, according to a survey by FactSet.
Revenue jumped 6.4 per cent to $47.11 billion, also topping forecasts. The company was resilient in a declining Chinese market, where it posted record third-quarter income of $865.88 million from July through September. And its pretax profit in North America, its most lucrative market, rose 33 per cent to $3.68 billion with a profit margin of 10.2 per cent.
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 $7.63 to $8.16 per share as it rolls out the new pickups and does its best to battle higher commodity costs.
Vehicles are seen in a parking lot at the General Motors Oshawa Assembly Plant in Oshawa, Ont., June 20, 2018. The company made the offer Wednesday to salaried workers with 12 or more years of service. (Tijana Martin/Canadian Press)
GM's global retail sales to individuals, on the other hand, dropped 15 per cent during the quarter, to 1.98 million vehicles. But sales to dealers, the point at which GM books revenue, rose 4.5 per cent, to 1.13 million.
GM was hit once again by costs associated with its giant recall for faulty ignition switches. The company posted a $579.02 million charge as it updated estimated costs for legal claims.
A year ago, GM posted a $3.95 billion net loss due to a $7.11 billion charge for selling Opel and Vauxhall to France's PSA Group.
The strong quarter is a result of GM executing well on its game plan, said Edward Jones industrials analyst Jeff Windau.
"If you're selling vehicles that have higher price points, you're able to offset some of those negative headwinds from the commodity prices," he said.
Windau was cautious about GM's prospects in the long term, rating the company's shares "hold" due to the risk of rising interest rates, higher commodity prices and the potential that rising gas prices could cut into pickup truck sales.
Suryadevara said GM expects tariff-driven commodity price increases to cost the company $1.32 billion this year, $526.39 million in the third quarter alone. The Trump administration has imposed 10 per cent tariffs on imported aluminum and 25 per cent on steel.
Autonomous vehicle spending
GM reported that its Cruise Automation autonomous vehicle unit spent $263.19 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.
GM has long talked about reducing costs in preparation for an economic downturn. The company is close to delivering on a promise to reduce structural costs by $8.55 billion annually by year's end.
Retired Chief Financial Officer Chuck Stevens hinted at white-collar cutbacks in April of 2017 when he told analysts that GM is looking for cuts as it simplifies its business after its exit from Europe. Simplification "will allow us to take significant structure out of the business, whether it's corporate staff, whether it's engineering staff," he said.