Cost-cutting and higher vehicle prices lift GM margins

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DETROIT (Feb 6): General Motors Co on Tuesday posted better-than-expected quarterly results as cost-cutting and higher vehicle prices offset a double-digit decline in U.S. sales volume and said it expects 2018 to be a strong year globally and in North America, sending its stock up more than 1%.

Speaking to reporters, Chief Financial Officer Chuck Stevens said despite recent stock market volatility due to concerns the U.S. economy may be overheating, the No. 1 U.S. automaker is "not overly concerned about inflation".

"Our forecast is premised on continued growth in the U.S. economy," Stevens said. He said GM expects interest rates to rise 75 basis points in 2018.

Stevens said that a 25 basis point increase in interest rates meant an increase of only US$3 for the average car loan payment.

"As long as these are moderate (interest rate) increases, they are easily digestible," he said.

Thanks to cost-cutting and higher transaction prices for its more popular, and higher-margin, SUVs and pickup trucks in North America, the Detroit-based automaker's global pre-tax margin rose to 8.2% in the quarter, versus 6.5% in the same quarter in 2016.

The company noted results had improved across all segments and that its South American business had returned to profitability in the second half of 2017.

The solid performance from GM underscores the current struggles of cross-town rival Ford Motor Co to boost its own profitability. Ford's fourth-quarter automotive operating margin fell to 3.7%, from 5.7% a year earlier.

GM's results came despite selling 135,000 fewer vehicles to dealers in North America in the fourth quarter and nearly 450,000 fewer in the full year than in 2016.

The automaker worked to reduce glut of unsold vehicles during 2017 with production halts, addressing a concern for analysts and observers alike.

GM also exited some markets in 2017, pulling out of India and parts of Africa, and selling its Opel/Vauxhall unit to France's PSA Group.

The automaker's results come as overall, U.S. auto industry new vehicle sales are in decline. Sales fell around 2% in 2017, after hitting an all-time record in 2016. Sales are expected to fall around another 2% in 2018.

GM reported a fourth-quarter loss of US$4.9 billion or US$3.46 per share, compared with a profit of US$2.1 billion or US$1.36 per share a year earlier. Excluding one-time items, GM posted earnings per share of US$1.65. On that basis, analysts had expected earnings per share of US$1.38.

The No. 1 U.S. automaker said it will record a US$7.3 billion non-cash charge for its fourth-quarter 2017 earnings related to deferred tax assets that will lose their value, because of the lower U.S. corporate tax rate.

Revenue for the quarter fell to US$37.7 billion, from US$39.9 billion a year earlier. Analysts had expected US$36.6 billion.

In pre-market trading, GM shares were up around 1% at US$40.01.