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Why General Motors’ Profit Margins Are Dropping in 2018

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May. 7 2018, Updated 10:33 a.m. ET

General Motors’ 1Q18 earnings

In the previous part of this series, we learned how General Motors (GM) performed in its key international markets. The company’s South America and China sales volumes rose in 1Q18. GM maintained its strong market share in the China market with the help of its joint ventures in the country. Now, let’s look at General Motors’ 1Q18 margins.

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Profit margins in 1Q18

In 1Q18, GM’s adjusted EBIT[1. earnings before interest and taxes] was $2.6 billion, down 25.7% from $3.5 billion in 1Q17. The company’s adjusted EBIT margin also contracted to 7.2% from 9.5% a year ago. This margin was notably lower than its adjusted EBIT margin of 8.2% in 4Q17.

GM posted an adjusted net profit of ~$2.0 billion in 1Q18 with a margin of 5.7%, which is much worse than its adjusted net profit margin of 6.3% in 1Q17.

Lower costs and positive mix

Lower global sales volumes had a negative impact on GM’s profit margins in 1Q18 due to planned downtime at its manufacturing facilities in North America. In contrast, a positive trend was seen in the company’s profitability from China and South America. Also, GM Financial’s margins improved year-over-year in 1Q18.

Auto giants (IYK) GM, Ford (F), Fiat Chrysler (FCAU), and Toyota (TM) have been strengthening their truck lineups. Medium-weight vehicles such as trucks and utility vehicles tend to yield higher margins for automakers than small cars.

Read on to the next part to learn about GM’s US market share in 1Q18.

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