General Motors is scheduled to report its second quarter 2016 earnings tomorrow morning. GM will be the first major automaker to release second-quarter 2016 financials, with results expected to be higher than they were in Q2 2015. That, however, might take second place to other, potentially more noteworthy items of interest.
Since June 27th, GM shares have risen roughly 13 percent. Though an upward trend, that is still about $2 below its November 2010 initial public offering price of $33. One of the biggest reasons is lack of confidence from investors that the industry can generate more profit in the near-term, just as new vehicle sales in the U.S. are expected to level off or decline slightly in 2017.
Analyst Consensus Of $1.29 Per Share On $38.6 Billion In Revenue
On average, analyst polled by Thomson Reuters expect GM to have earned $1.29 per share in the second quarter, a notably increase from $1.08 per share in the same time frame in 2015.
Revenue is expected to be $38.6 billion, up $600 million from the $38.2 billion in the second quarter of 2015.
Analysts, investors, and stakeholders are hoping to learn more about specific elements of The General’s business, including its efforts to make more money by selling less cars, how much it us spending on autonomous vehicle technology and “new mobility” efforts, as well as its performance in Europe, China, and South America.
As is always the case for GM, the overwhelming majority of the company’s profits will be derived from its North American operations. So far this year, U.S. vehicle sales are running at a similar pace to last year’s record numbers.
Make More By Selling Less
But sales of GM vehicles have dropped roughly 8 percent in the second quarter of the year versus the same period a year ago as a result of a planned strategy to decrease sales to daily rental firms such as Enterprise, Hertz, Avis-Budget, National, and others. Instead, the automaker is focusing on more profitable sales to individual customers, known as retail sales.
What will be interesting to see is whether GM is making a greater profit despite selling less vehicles. Selling less cars to rental fleets also has the secondary impact of increasing residual values of GM’s vehicles, which traditionally has been problematic for the automaker.
Speaking to the Detroit Free Press, David Kudla, CEO and chief investment officer of Mainstay Capital Management in Grand Blanc, Michigan, believes that GM will, indeed, be more profitable despite selling less cars.
“They [GM] have been consistently increasing their share of retail sales. Their average transaction prices are among the highest in the industry.”
Another item of interest will be the performance of GM’s European subsidiary, Opel, which has notoriously been unprofitable for roughly a decade.
In the second quarter,sSales of the European brand, and its U.K.-only sister marque – Vauxhall, rose 11.2 percent. In addition, the division managed to pull off break-even results in the first quarter of the year as it attempts to carry the position across the remainder of the year.
In addition, GM, as well as several other automakers, face uncertainty after British citizens voted to leave the European Union last month. The development shouldn’t have much of an impact on GM’s second quarter, however, since the vote took place on June 23th, and the quarter ended one week later.
Performance In International Markets
In China, GM and its joint venture partners have been able to increase new vehicle sales about 12 percent in the second quarter — positive progress in the world’s largest automotive market. GM shares half of its Chinese earnings with China’s SAIC — its joint venture venture partner in the country.
South America is expected to remain a problem area as a result of various economic and political crises. GM lost $67 million in the first-quarter in the region.
GM’s Q2 2016 earnings report is also expected to reveal how much the automaker paid to acquire Cruise Automation — a San Francisco start-up developing partially self-driving cars with the help of a device that combines sensors, cameras and maps.
Though GM has never discussed terms of the acquisition, some have reported that GM paid over $1 billion for the three-year-old firm with less than 50 employees. GM has already begun testing prototype units of its upcoming Chevrolet Bolt EV fitted with Cruise Automation technology.
Vehicle And Ride Sharing Initiatives
In addition to efforts in autonomous vehicles, GM is also actively pursuing ride-sharing services. In January, it invested $500 million in ride-sharing provider Lyft in exchange for a 9 percent stake in the company. The investment was presented as an effort to develop and plan future autonomous vehicle networks. For its part, GM is currently pleased with the partnership, and has launched programs in Chicago, Baltimore and Washington, D.C., that enable Lyft drivers to lease GM vehicles.
In January, The General also launched Maven — a personal mobility service that allows users to rent GM vehicles using the Maven app. The service is currently available in Ann Arbor, New York City, Boston and Chicago. This week, GM expanded availability of the service to Washington, D.C.
General Motors is scheduled to report its second-quarter earnings on the morning of Thursday, July 21st, 2016.