GM Raises 2016 Profit Forecast, Boosts Buyback by $4 Billion – Bloomberg

General Motors Co. raised its earnings projection for 2016 by 25 cents a share, increased the size of its share buyback and boosted the dividend to start the year.

GM forecast adjusted earnings per share of $ 5.25 to $ 5.75 for the year. Anticipating better profits, GM's board raised the share buyback plan to $ 9 billion from $ 5 billion and lifted the dividend to 38 cents a share from 36 cents. GM shares jumped 5.9 percent to $ 32.08 at 8:17 a.m. New York time in early trading.

The GM 2017 GMC Acadia Denali

Photographer: Daniel Acker/Bloomberg

The company sees continued but slowing sales growth in its very profitable North American business and in China. GM's new forecast comes a day after Ford Motor Co., the second-largest U.S. automaker, projected record profits in 2016 and announced a special dividend of $ 1 billion. Ford shares fell 2.1 percent to $ 12.58.

"We made significant progress executing our strategic plan and the results are being demonstrated through improved earnings," Chief Executive Officer Mary Barra said Wednesday at the company's Detroit headquarters before discussing the outlook at a Deutsche Bank conference. "We expect to sustain strong margins in North America and China and break even in Europe."

Part of GM's optimism comes from the strong U.S. light-vehicle market. In 2015, carmakers sold a record 17.5 million cars and light trucks in the U.S. and GM expects slight growth from that level. Despite turbulence in China's financial markets, GM management still sees the market growing, the company said in a statement. Breaking even in Europe would be progress since GM hasn't turned a significant profit there since the 1990s.

GM is relying on strong profits in North America with several key new models coming to market this year, such as the Chevrolet Malibu and Buick Lacrosse family sedans and the GMC Acadia and Cadillac XT5 sport utility vehicles.

Efficient Investment

Another driver of improved financial performance is more efficient investment in new models, said President Dan Ammann. Almost all of GM's new models are significantly lighter, which allows the company to meet future fuel economy rules with less-expensive engines and transmissions, he said.

GMC's new Acadia, which goes on sale in May, is 700 pounds lighter than the current version and gets better fuel economy, GM said Tuesday at the Detroit auto show.

GM is also building more models using the same frame underneath the car, especially in emerging markets, reducing the cost to develop vehicles, Ammann said. GM announced last year a plan to invest $ 5 billion to develop new vehicles for markets like Mexico, China and India. One car platform will host those vehicles, replacing several costly sets of hardware, he said.

With GM already developing models more efficiently, the company hit its target of 10 percent margins — measured by earnings before interest and taxes — in North America. GM is targeting 9 percent to 10 percent EBIT margin by the beginning of next decade, Barra said.

Right now, GM spends 5 percent to 5.5 percent of revenue on capital expenditures like developing new vehicles. Over time, GM can reduce that spending and return more cash to shareholders, Ammann said.

The company has already bought back $ 3.5 billion of the $ 5 billion in shares that it announced in the buyback last year, the company said.

GM also announced a plan to help its dealers manage an increasing number of off-lease and former fleet cars. GM will certify them as pre-owned vehicles and offer factory warranties to help dealers sell the cars at better prices.