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Why Analysts Expect Improved Margins for General Motors in 2016

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Dec. 4 2020, Updated 10:52 a.m. ET

General Motors’ current margins

General Motors (GM) has managed to maintain better margins than its closest peers, Ford Motor Company (F) and Fiat Chrysler Automobiles(FCAU). In 3Q15, the company reported a record adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $3.1 billion with an adjusted EBITDA margin of 8%.

In this article, we’ll look at Wall Street analysts’ estimates for GM’s profit margins in 2016 and beyond.

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Analysts’ estimates

Analysts are estimating that General Motors’ profit margins more than doubled in 2015. They estimate 5.2% in 2015 compared to 2.5% in 2014. The increasing demand of crossover vehicles and pickup trucks in the US auto market (XLY) could be one of the key drivers behind this margin expansion in 2015.

Last year, GM worked on its product mix to extract the most profit out of every vehicle it sells. This has improved its average transaction price. GM has been paying more attention to its mid-sized trucks and SUVs such as the Chevy Tahoe and the Suburban. These vehicles are more profitable than its small cars.

For 2016 and 2017, analysts estimate GM’s EBITDA to grow by 13% and 3%, respectively. These higher future growth expectations could be driven by the following key factors:

  • GM is set to launch several vehicles in 2016. They include luxury vehicles such as the Cadillac CT6 sedan and the 2016 Buick Cascada. With these models, the company plans to focus on its luxury car segment, which yields more profits than the mass vehicles segment.
  • GM’s plan to “drive core efficiencies across the enterprise” will be an important factor that may enable the company to boost its profit margins further. This plan may reduce the company’s supply chain costs.

Note that in 2016, General Motors plans to increase its presence in the electric vehicle segment with the launch of its much-anticipated Chevy Bolt EV, equipped with a 200-horsepower engine. This car may pose competition to leading EV vehicle manufacturer Tesla (TSLA).

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