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What Factors Drove General Motors’ 3Q16 Margins?

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General Motors’ 3Q16 earnings

Previously, we explored how General Motors’ (GM) revenues from Europe remained disappointing after the Brexit referendum. At the same time, the company continued to struggle in South America due to the weak economic environment. Now, we’ll look at General Motors’ profitability in 3Q16.

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3Q16 margins

In 3Q16, General Motors’ gross margins expanded to 18.8% from 17.5% in the same quarter last year. The company’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) was $5.7 billion with an EBITDA margin of 13.3%. The margin was also significantly higher than 7.7% in 3Q15.

Likewise, General Motors’ net profits more than doubled in 3Q16 to $2.8 billion with expanded net profit margins of 6.5%—compared to 3.5% in 3Q15.

Focus on profitability

For the last few years, General Motors has been cutting its fleet sales to rental car companies in order to boost its margins. It wanted to utilize its plant capacity to manufacture other more profitable vehicles for retail customers. The profitability from fleet sales tends to be lower than the profitability from retail vehicle sales.

Earlier this year, the company made it clear that it will continue its strategy of cutting fleet sales in fiscal 2016. The strategy is yielding expanded margins. Also, higher sales of pickup trucks and utility vehicles in the US, compared to small cars, helped General Motors expand its margins.

Interestingly, General Motors’ strategy of focusing on highly profitable sales boosted its margins. It allowed the company to extract high profits from its home market.

Due to the high demand for heavyweight vehicles in the US, other automakers (FXD) including Ford (F), Fiat Chrysler (FCAU), and Toyota (TM) also benefited.

In the next part, we’ll discuss General Motors Financial Company’s performance in 3Q16.

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