With more than 50 orders for the new Corvette sports car, Florida Chevrolet dealer Steve Hurley said he's anticipating big things from General Motors Co.'s product push that reaches U.S. showrooms during the second half of 2013.
The redesigned Corvette, Silverado and Impala are among the 18 new or refreshed GM vehicles arriving in the U.S. this year, the largest wave of new products in the company's history. The models are poised to put Chief Executive Officer Dan Akerson in the driver's seat by flipping GM's lineup into one of the newest in the industry from one of the stalest. That's why analysts see profit improving following the second-quarter results that GM is set to release July 25, a day after Ford reports.
"Q3 and Q4 will be very, very strong for us," said Hurley, who co-owns his dealership outside of Tampa. "The launch of the Silverado will be strong enough to create greater awareness for the brand in general."
Goldman Sachs last week swapped GM for Ford on its Americas Conviction Buy list and projected that the largest U.S. automaker's shares may rise to $45 in the next year. Patrick Archambault, a New York- based auto analyst for Goldman Sachs, said GM will earn higher profit margins because of its new pickups and that the automaker may pay a dividend by the end of the year.
"We see GM as one of the most attractive product stories in the sector," he wrote.
While GM's U.S. sales increased 6.8 percent in the second quarter from a year ago, that may not translate to rising profit when the company announces the April-to-June results. Adjusted earnings per share probably declined 15 percent from a year ago to 76 cents a share, the average estimate of 13 analysts surveyed by Bloomberg.
GM's product line, little changed since it emerged from bankruptcy reorganization four years ago, continued to age, and the company has been investing heavily to prepare for its new vehicle introductions. The automaker also continues to work to stem losses in Europe, where it aims to break even by mid-decade.
Much of GM's U.S. growth in the second quarter came from sales of its old pickups. Combined deliveries of the Silverado and the Sierra, the GMC brand equivalent, rose 26 percent. That growth was in line with gains posted by Ford's F-Series, the market's top-selling line of vehicles. The high-volume F-150 is due for a redesign next year.
Ford, which reports its second-quarter results Wednesday, may say its adjusted earnings per share rose 23 percent to 37 cents, the average of 17 analysts.
Ford's North America operations may have earned a pretax profit of $2.35 billion during the quarter, said Itay Michaeli, an analyst for Citigroup in New York.
"Certainly, pickups have a lot to do with that," he said last week in an interview.
In North America last year, GM's profit margin was 7.6 percent, trailing Ford's 10.4 percent, a record for the Dearborn, Mich.-based company.
That gap will narrow, predicted Joseph Spak, a New York- based auto analyst with RBC Capital Markets. GM's North American profit margin will probably rise to 9.6 percent in 2015, while Ford's will probably slip to 10.2 percent, he said in a telephone interview.
GM will trim the shortfall versus Ford by refreshing 90 percent of its cars and trucks in North America in the next three years, Spak said. By comparison, Ford will replace less than 50 percent of its lineup from this year through 2016, he said. GM has an opportunity to make an incremental $1 billion of annual profit from the new pickups alone by commanding higher prices, he estimates.
"This is at the crux of the GM versus Ford debate in the conversation I have with investors," Spak said. "It's about 'Can Ford sustain that high level of profitability?' and 'Can GM close the gap?' Typically, investors like to see rate of change, and so GM is probably going to start getting a little bit more attention from here."
GM's enterprise value is 2.9 times analysts' estimates of earnings over the next year before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. Ford's value is 5 times its projected profits and Toyota Motor Corp. is at 10.1 times.
GM returned to the S&P 500 during the second quarter, a milestone triggered in part by the U.S. Treasury reducing its stake in the automaker. Shares on May 17 topped the $33 initial public offering price for the first time in two years, and a union retiree medical trust has begun selling its stock.
Ford is letting its profit margins in North America stagnate, choosing to pour gains from the lucrative F-Series into stronger passenger cars and other parts of the business, Brian Johnson, a Chicago-based auto analyst for Barclays Plc, said by telephone.
"Ford is, by design and choice, at peak margins in North America, whereas GM still has room to expand its margins," said Johnson. "GM is about three to four years behind Ford in its process reinvention, and it's a little bit more of a glass-half- empty or glass-half-full story."
GM lags behind Ford in its renaissance because its product development was significantly disrupted by its 2009 bankruptcy, said Mike Jackson, chief executive officer of AutoNation Inc., the largest U.S. auto-dealership group.
"The disruptions were unfortunately on their pickup trucks and large SUVs, which are core strengths of GM," Jackson said in a telephone interview. "Their pickup truck is very late."
The new GM trucks are just rolling into the showrooms of AutoNation's Chevrolet and GMC dealerships. Mike Maroone, AutoNation's chief operating officer, said he and Jackson initially were skeptical about the revamped pickups because changes to their exterior design were evolutionary.
"We were at the Detroit auto show and looking at each other and we had to go up and look at the window to see what year it was," Maroone said by telephone. "Once you get beyond that, you look at the interior, you look at the fuel economy, you look at their go-to-market strategy and marketing, and it's outstanding."
GM may raise its 2013 forecast for profit margin in North America because of strong truck sales and pricing, Barclays's Johnson said. Akerson is targeting 10 percent North America operating margins by mid-decade. Barclays projects a margin of 8.1 percent this year, driven by estimated boosts of $594 million from better pricing of its models and $300 million from trucks making up a rich mix of its sales.
The average transaction prices of GM's full-size pickups rose 5.3 percent to $36,641 during the second quarter compared with a year earlier, according to Edmunds.com, a website that tracks auto sales. That's still behind Ford's F-150, which averaged $38,841 during the quarter.
GM's total average transaction prices rose 4 percent to $33,783, outpacing Ford's 2.9 percent increase to $33,166, according to Edmunds.
While there's a lot of excitement about what the new products will do for GM, the automaker faces increased competition from others' new vehicles, said Jessica Caldwell, an analyst with Edmunds.com.
"The rest of the market out there is really strong," she said.
The new Silverado Crew Cab began trickling into showrooms in May with plans for the double cab to arrive in the third quarter, followed by the regular cab a month to 45 days later, GM has said. It won't be until the fourth quarter when GM is selling more of the 2014 models than 2013s.
Other new GM vehicles arriving in the fourth quarter include the redesigned Cadillac CTS sedan and refreshed Buick Regal car. The new Chevrolet Impala sedan began arriving in showrooms in the second quarter.
Hurley, the Florida Chevrolet dealer, said he expects those new Corvettes to arrive at his dealership in September or October.
"For the rest of the calendar year, pretty much everything we have coming in will be pre-sold for Corvette," he said.