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GM Revival Slows Down

May 4, 2012
4 min to read


General Motors Co. posted a lackluster first quarter, showing some improved profitability but weakness overseas and continued losses to rival Ford Motor Co. in North America, its strongest market.


GM earned $1 billion in the first three months, down 69 percent from the $3.2 billion profit a year ago that benefited from one-time gains. Revenue climbed 4.3 percent to $37.76 billion, according to The Wall Street Journal.

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The profitability was certainly an improvement from the losses that plagued GM before its 2009 bankruptcy. But in many ways, GM is still feeling the effects of the financial crisis. Amid that turmoil, GM halted development of its next generation of big trucks and SUVs and put off efforts to streamline its global manufacturing operations.


"We're still addressing the consequences of decisions made in and around that time," finance chief Dan Ammann said in an interview.


Shares in GM, which is still more than a quarter owned by the U.S. Treasury, fell 2.4 percent.


GM on average made $1,962 on every vehicle it produced in North America during the first quarter. Ford made $3,150 a vehicle, 60 percent more than GM in the quarter.


Meantime, Ford is far ahead of GM in its global effort to reduce auto "platforms" used across the globe. Major auto makers are moving to build vehicles from the same basic parts and assembled in plants that use the same tooling—wringing savings from engineering budgets.

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Big global auto platforms, those used to build a million or more vehicles a year, comprise about 54 percent of GM's current volume, according to IHS Global Insight. At Ford, global platforms account for close to 70 percent of the company's volume.


Against that backdrop, each of GM's international units posted weaker profit than a year ago, with its European operation suffering a $256 million loss, compared with a $5 million profit a year ago, on a 15 percent decline in vehicles sold. GM also took a $590 million charge to goodwill for Europe.


GM's core North American unit, though solidly profitable and improved from a year ago, fell short of forecasts and trailed Ford, which is benefiting from its new line of high-margin pickup trucks and more efficient global manufacturing operations.


Mr. Ammann said GM's North American results won't likely improve in the second and third quarters this year as the company transitions to a new line of light trucks, thus building fewer of the high-margin vehicles throughout most of the year.


GM's North American operating profit rose 31 percent to $1.7 billion, with margins improving to 7 percent, from 5.6 percent a year ago. That is better than the 5 percent figure that U.S. auto makers once considered acceptable, but far from GM's goal of 10 percent globally.

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Ford's operating profit rose 16 percent to $2.1 billion, giving it a profit margin of 11.5 percent for the region. However, Ford said it is unlikely to maintain that margin level for the rest of 2012.


Ford's new line of F-series pickup trucks are driving up profits for the auto maker. In comparison, GM's Chevrolet Silverado and GMC Sierra pickups are dated and redesigned models aren't out until 2013.


GM aims to improve its margin this year with the launch of some important new vehicles, including luxury Cadillacs and its next-generation Chevrolet Malibu midsize sedan.


It has vowed to resist the urge to pile on discounts or unload vehicles into rental fleets to bolster volume at the expense of margins.


While U.S. sales rose 2.7 percent in the first quarter, its market share dropped nearly 2 percentage points to 17.2 percent as rivals notched bigger gains. Ford's sales rose 8.5 percent in the quarter and Chrysler's were up 35.9 percent.

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Outside of North America, GM's results fell from a year ago, hurt by economic turmoil in Europe and increasing competition in South America. Its unit including China reported operating profit of $529 million, down 9.7 percent.


Mr. Ammann said it was "too soon to tell" when losses in Europe will bottom out. The company is preparing a restructuring plan for the region and has its sights set on closing one or two factories amid overcapacity throughout the region, people familiar with the matter have said.


Investors, labor unions and regional governments are eagerly awaiting GM's plan, which Mr. Ammann said could be rolled out gradually in the months ahead.


"Everybody is waiting for a big bang," he said. "I am not sure there is going to be a big bang."


Excluding charges of 33 cents a share for goodwill impairment on its international operations, GM's earnings fell to 93 cents a share. Analysts had forecast earnings of 85 cents a share. A year ago, the company's earnings were lifted by $1.5 billion in gains on sale of its holdings in former units Delphi Automotive LLP and Ally Financial. "We making solid progress, but it's a long-term path that we are on to get to the [margin] levels we want to be at," Mr. Ammann said.

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