As tariff headwinds weigh on the company’s margins, UBS sees a path for General Motors North America (GMNA) to restore its profit margin back to the 8-10% range through fixed cost cuts, price increases, and regulatory savings.
UBS analyst Joseph Spak upgraded GM (NYSE:GM) to Buy from Neutral and raised his price target by 45% to a Street-high of $81, citing the automaker’s historical sales mix, and its tendency to shift toward higher-margin vehicles during certain industrial cycles.
With core GMNA EBIT likely running closer to $9B to $12.3B in 2025, and assuming flat revenue growth, along with the company running at the margin midpoint of UBS’s normalized range post-tariff adjustments, GM (NYSE:GM) would need to make up for ~$3.2B in EBIT to get back to the midpoint of its original 8-10% target and $1.7B in EBT to get to the low end of this target.
Spak believes GMNA can reach this somewhat ambitious goal and restore margins back to 8-10% driven by a number of factors:
- Tariff relief from South Korea and Mexico—while still burdensome – could contribute a potential 150 basis point tailwind;
- Lower emissions standards which will reduce the company’s regulatory expense and contribute a ~$300M credit expense tailwind in 2025;
- A new fixed cost savings program, $1B of which would be worth 60 basis points to margins; and finally,
- Continued rate cuts that will add 50-100 basis points to potential price increase leverage (lower rates would keep car payments unchanged and given GM more leeway to hike prices) and add $750M to $1.5B in EBIT.
“Despite tariff cost headwinds, we still believe that an 8-10% margin [for GM North America] is achievable within the next 12-24 months and that the low end of the range could be reached as early as next year,” Spak said in his note to clients.
The upgrade fueled a 2.4% gain in GM (NYSE:GM) shares during premarket trading, setting the stock up to snap a three-day losing streak.