5 Reasons GM Expects North America Margins to Improve in 2026

North America is the most important market for General Motors GM. The U.S. auto giant expects its North America EBIT margins to return to the 8-10% range in 2026, implying an improvement from 6.8% recorded in 2025. The margin recovery is expected to come from lower costs, better product mix and several one-time headwinds rolling off.

One key factor is lower EV losses. In 2025, GM absorbed significant costs tied to excess EV capacity and slower-than-expected demand. The company took sizable charges to right-size its EV footprint. Those actions reduce fixed costs. This year, GM expects EV losses in North America to be meaningfully lower, helping lift margins even if EV volumes remain soft.

Lower warranty costs are another important driver. GM guided a $1 billion year-over-year benefit from lower warranty expenses in 2026. Management noted that monthly warranty cash outflows have stabilized. As accruals catch up with cash trends, margins should benefit.

Regulatory relief also plays a role. GM expects $500-$750 million in savings from lower compliance costs, mainly tied to emissions and fuel economy regulations. These savings will also provide another tailwind to margins.

Product mix remains supportive. GM continues to benefit from strong demand for full-size pickups, SUVs and profitable crossovers. While there will be some production downtime in 2026 ahead of new truck launches, management expects mix discipline to remain intact. Importantly, GM has been operating with low inventory and low incentives, which helps protect margins even in a competitive market.

Finally, management expects the net tariff impact to decline year over year, reducing pressure on North America margins. GM expects gross tariff costs to remain elevated in 2026, but the company is offsetting more than 40% of those costs through pricing actions, footprint changes, and cost reductions.

So, the margin recovery does not depend on strong industry growth or price hikes. It relies more on a strong product lineup, disciplined cost control, and the fading of temporary pressures. And if these drivers play out, GM’s North America business should look stronger and more stable in 2026.

Competitive Context: F & STLA

Ford F faces a more uneven margin recovery path in North America. While its traditional ICE business remains profitable, Ford continues to deal with elevated EV-related losses, particularly in its Model e segment. Warranty costs have also been a persistent issue, weighing on margins despite improvement efforts. Ford also expects Q4’25 EBIT headwind from supply disruptions following the fire at Novelis’ aluminum plant. 

Stellantis STLA is taking a more rebuild-focused approach to margins in North America. The company is banking on new products like the Jeep Cherokee, which targets the mid-size SUV segment that accounts for roughly 20% of the U.S. market. Stellantis has also announced a $13 billion U.S. investment aimed at expanding domestic production. However, near-term margins remain pressured due to higher incentives, warranty costs and production gaps, with full-year 2025 margins in North America expected to stay in the low single digits.

Zacks Rundown on GM

Shares of General Motors have risen 76% over the past year, handily outperforming the industry.

From a valuation perspective, GM appears undervalued. Going by its price/earnings ratio, the company is trading at a forward earnings multiple of 6.68, compared with the industry’s 81.6. 

See how General Motors’ earnings estimates have been revised over the last 90 days.

GM stock carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research