Why GM Should Send a Thank You Note to Saudi Arabia
General Motors shares are up more than 4 percent Thursday after the automaker reported better-than-expected profits. The company earned more than $1 billion in profits last quarter, well above Wall Street’s forecasts.
A big reason for the blowout quarter was record margins in North America, thanks in large part to increased sales of trucks and SUVs. The headline at the Detroit Free Press says it all: “GM earns $1.1B in Q2 as pickup, SUV sales surge in U.S.”
Related: What's Next for Oil Prices? Look Out Below!
As a general rule, big pickup trucks and SUVs deliver higher profit margins than smaller, cheaper cars, so Detroit is always happy when large vehicles are selling. Another general rule seems to be that when gas is cheap, Americans start dreaming about gas-guzzling vehicles of all kinds, from blinged-out GMC Yukon XL Denalis to fuel-blasting Chevy Camaro ZL1s. And gas certainly has been cheap lately, thanks in large part to Saudi Arabia’s decision to maintain crude oil production levels in the face of increased U.S. production and a global slowdown in demand for energy.
Here’s a chart of gas and oil prices over the last three years, courtesy of GasBuddy. Note the steep decline starting in 2014:
As long as oil and gas are cheap, GM can probably count on selling lots of its most profitable vehicles. And with China slowing and Iran rejoining the global oil market, cheap fuel may be here for a while.
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Budget ‘Chaos’ Threatens Army Reset: Retired General
One thing is standing in the way of a major ongoing effort to reset the U.S. Army, writes Carter Ham, a retired four-star general who’s now president and CEO of the Association of the U.S. Army, at Defense One. “The problem is the Washington, D.C., budget quagmire.”
The issue is more than just a matter of funding levels. “What hurts more is the erratic, unreliable and downright harmful federal budget process,” which has forced the Army to plan based on stopgap “continuing resolutions” instead of approved budgets for nine straight fiscal years. “A slowdown in combat-related training, production delays in new weapons, and a postponement of increases in Army troop levels are among the immediate impacts of operating under this ill-named continuing resolution. It’s not continuous and it certainly doesn’t display resolve.”
Pentagon Pushes for Faster F-35 Cost Cuts
The Pentagon has taken over cost-cutting efforts for the F-35 program, which has been plagued by years of cost overruns, production delays and technical problems. The Defense Department rejected a cost-saving plan proposed by contractors including principal manufacturer Lockheed Martin as being too slow to produce substantial savings. Instead, it gave Lockheed a $60 million contract “to pursue further efficiency measures, with more oversight of how the money was spent,” The Wall Street Journal’s Doug Cameron reports. F-35 program leaders “say they want more of the cost-saving effort directed at smaller suppliers that haven’t been pressured enough.” The Pentagon plans to cut the price of the F-35A model used by the Air Force from a recent $94.6 million each to around $80 million by 2020. Overall, the price of developing the F-35 has climbed above $400 billion, with the total program cost now projected at $1.53 trillion. (Wall Street Journal, CNBC)
Chart of the Day - October 6, 2017
Financial performance for insurers in the individual Obamacare markets is improving, driven by higher premiums and slower growth in claims. This suggests that the market is stabilizing. (Kaiser Family Foundation)
Quote of the Day - October 5, 2017
"The train's left the station, and if you're a budget hawk, you were left at the station." -- Rep. Mark Sanford, R-S.C.