Q3 results bear out Detroit 3 strategy

October 30, 2017 01:00 AM

DETROIT — The Detroit automakers are using third-quarter financial results as initial proof that decisions to rejigger operations and slash car production were the right moves to remain profitable in a declining, crossover-heavy U.S. market.

General Motors, Ford Motor Co. and Fiat Chrysler Automobiles each last week reported better-than-expected results, including each posting North American profit margins of at least 8 percent for the first time since the 2008-09 recession. That's despite flat or lower sales and revenue.

Stevens: Margins show benefits.

"This was another solid quarter, even with significantly lower volumes," GM CFO Chuck Stevens said during a conference call with media and analysts. "Our solid margins illustrate the benefits of the strategic actions we've taken resulting in a simpler, more focused business with a leaner cost structure."

Detroit's Q3 results

Ford Motor Co.

Net income: $1.56 billion, up 63%

Pretax operating profit: $1.97 billion, up 40%

Revenue: $36.45 billion, up 1%

North American profit: $1.68 billion, up 31%

General Motors

Net loss: $2.98 billion (vs. net income of $2.77 billion a year earlier)

Pretax operating profit: $2.52 billion, down 31%

Revenue: $33.62 billion, down 14%

North American profit: $2.07 billion, down 43%

Fiat Chrysler Automobiles

Net income: €910 million ($1.05 billion), up 50%

Pretax operating profit: $2.07 billion, up 17%

Revenue: $31.17 billion, down 2%

North American profit: $1.52 billion, flat

Source: Companies

GM was the only automaker to post a net loss for the quarter, amounting to $2.98 billion, due to the sale of its Opel/Vauxhall European operations, while its continuing operations reported a $2.52 billion pretax operating profit, down 31 percent from a year ago due to cuts in vehicle production.

The 26 percent reduction in North American production was primarily to scale back assembly of slow-selling cars and help position year-end dealer inventory levels below 2016's, which Stevens called "a great launch point going into 2018."

Marchionne: Next 3 months critical

FCA CEO Sergio Marchionne also is looking to 2018 to drive the automaker's operations and prove that a massive U.S. production shuffle to move all domestic plants to crossovers, pickups and SUVs was the right choice.

"The flawless execution of that plan will pretty much deliver 2018," he said on a call with analysts, emphasizing that the changeovers are occurring without any downtime to current production of its Ram pickups and Jeep SUVs.

Marchionne said FCA's ability to hit its lofty 2018 financial targets largely will depend on the next three months, as it launches production of the redesigned 2018 Jeep Wrangler, the redesigned 2019 Ram 1500 pickup and a freshened 2019 Jeep Cherokee, representing more than 1 million units of its most profit-rich vehicles.

FCA's third-quarter net income totaled $1.05 billion, while North American revenue slipped 4 percent to $18.98 billion and shipments in the region slipped 6 percent to 592,000 vehicles.

FCA reached 8 percent North American margins mainly thanks to a heavier sales mix of more profitable pickups and SUVs, as well as pricing gains, a common trend across the Detroit automakers.

Ford's third-quarter net income rose 63 percent to $1.56 billion, helped by foreign tax credits and strong light-truck sales in North America. That trend is expected to continue as the automaker looks to increase its offerings of crossovers and pickups, beginning in 2018.

"This quarter demonstrates that our team's focus on fitness is showing early promise," Ford CEO Jim Hackett said in a statement. "But we also know that we must accelerate that progress in the near term."

Ford's revenue, pretax profit and operating margin all increased in what CFO Bob Shanks called a more balanced performance than in recent quarters.

Ford's adjusted pretax profit climbed 40 percent from a year ago to $1.97 billion, while revenue inched up 1 percent to $36.45 billion.

Wall Street reacted positively to all three automakers' results, sending each of the stocks up after the earnings releases.