The automobile industry is on an uptrend, as demand for vehicles is growing. With lower gasoline prices, there is more money left in people's pockets. Thus, customers are willing to spend, resulting in higher automobile sales. General Motors (GM, Financial) is one of the largest automakers and is witnessing better days. Its shares have risen in the last year despite various problems related to defective engine.
General Motors’ recently reported fourth quarter results were also good, with both the top line and the bottom line coming in ahead of the Street’s estimates. Thus, its shares moved north after the announcement.
Into the numbers
Revenue for the quarter slipped 2.2% to $39.6 billion, over last year. This was lower than the analysts’ estimate of $40 billion. Higher demand for pickup trucks and SUVs, which have higher margins, resulted in a better-than-expected top line. Also, the company’s products such as the Chevy Silverado and GMC Sierra registered growth, as sales surged 26% during the quarter.
However, worldwide wholesale unit sales were down 4.4% to 1.58 million vehicles. But, growth in the retail segment partly offset the weakness in the wholesale unit. Worldwide retail auto sales grew 3.3% to 2.6 million and were driven by growth in Asia Pacific, Africa, Middle East and North America.
Overall, the market share of the company remained flat. General Motors is looking to expand in emerging markets such as India, China and Brazil. China has been a bright spot with a total growth of 12% in the last year. This is mainly because of the popularity of the luxury brand Audi in China.
Moving ahead
Further, the automaker plans to launch new and updated products in order to grow its business and attract more and more customers.
The adjusted earnings of the company stood at $1.19 per share. This was higher than the analysts’ estimate of $0.85 per share.
Although demand for its pickup trucks and other vehicles have been strong, General Motors faces tough competition from peer Ford (F, Financial), which is doing pretty well. Ford’s new products have become very popular with customers. The new Ecosport and F-150 pickups have resonated well with the customers.
General Motors, too, plans to come up with new vehicles. Some of the new introductions include Chevy Malibu midsize car, Chevrolet Cruze, and Chevrolet Equinox crossover SUV. This will increase the company’s capex by 20%. This is expected to grow the automaker’s business. In fact, it expects to generate 27% of its revenue from new vehicles in 2015.
Also, the company is expected to grow its total revenue by 38% in 2016 and 2017. Sales in the month of January surged 18% to 202,786 vehicles as demand for Silverado pickup truck and GMC line of SUVs increased. Thus, the future looks bright for the company.
Conclusion
General Motors seems to be headed on the right path with new vehicles and expansion in the cards. It also announced plans to increase dividends by 20% to $0.36 per share in the second quarter. Thus, annual dividend payments will increase by $400 million to $2.4 billion. However, tougher emissions and safety standards and recall of vehicles should affect its results for some more time. Nonetheless, this company is worth a bet.
