Stronger N. American pricing drives GM's first-quarter results
Net profit drops to $1B on Europe woes while revenue rises 4% to $37.8B
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GM's North American assembly plants operated at 103 percent of capacity in the first quarter, compared with 97.3 percent in the year ago period. Photo credit: GM |
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DETROIT -- General Motors today posted sharply higher first-quarter profits in North America thanks to stronger pricing, which helped to blunt continued troubles in Europe.
GM's $1.0 billion net profit for the January-March period was driven by a 35 percent jump in North American pretax profit. GM losses in Europe, $256 million, were smaller than most analysts expected but worse than its break-even result in the same period a year earlier.
The increase in North American pretax profit, to $1.69 billion, came despite a drop in GM's U.S. market share to 17.5 percent, from 19.6 percent for all of 2011. GM credited the profit boost mainly to higher prices and lower incentive spending.
"Our North American business drove these results," GM CEO Dan Akerson said during a conference call with analysts and reporters.
"This really speaks to our balanced portfolio of our cars, trucks and crossovers," he said, citing the success of the Chevrolet Cruze compact, Cadillac SRX crossover and recently launched cars such as the Chevrolet Sonic and Buick Verano.
In North America, GM revenues rose 9 percent during the first quarter to $24.18 billion, reflecting higher unit sales and pricing.
One-time charges
GM said global revenue rose 4 percent to $37.8 billion during the latest period compared to a year ago.
The automaker's net profit for the first quarter included a one-time loss related to goodwill impairment, mostly tied to changes in accounting for GM's pensions in Europe. Those charges reduced net profit by $612 million.
The bottom line was down from a $3.2 billion profit in the first quarter of 2011. In that quarter, GM's earnings were padded by $1.5 billion in one-time gains, including a sale of stock that GM owned in supplier Delphi Automotive.
Stripping out the one-time items from each quarter, GM said its pretax profit grew to $2.2 billion, from $2 billion a year earlier.
It was GM's ninth straight profitable quarter since emerging from bankruptcy in July 2009.
Prices up, incentives down
GM's average transaction price per vehicle in the United States rose by $300 in the first quarter compared with a year earlier, while its average incentive fell by $380, a GM spokesman said.
Stronger pricing globally boosted GM's pretax bottom line by $800 million; North America accounted for about half of that.
"This discipline you're seeing with respect to pricing and incentives … it bodes well," Akerson said. He said new vehicles such as the Sonic are being sold with more features and content, allowing GM to "hold price and get a premium."
Akerson added, though, that it hasn't been easy for GM to hold the line on incentives as its market share has declined in recent months.
"Sometimes it's difficult to remain as disciplined as we have been when you look at the activity of some of our competitors," he said.
Pickups to crimp profits
Even so, GM's incentive spending was about 9 percent higher than the industry average when measured as a percentage of its vehicles' average transaction prices, according to a presentation GM prepared for analysts.
In coming months, GM's North American profits will be hurt by reduced production of full-sized pickups because of scheduled downtime at its truck plants, GM said.
GM's three truck plants will be idle for at least a combined 15 weeks in the second and third quarters as the company retools the factories to produce its next generation of pickups and SUVs, due out next year.
The reduced production of pickups -- among the automaker's most profitable vehicles -- likely will translate to lower year-over-year profits in the second and third quarters.
GM said North American pretax profits over the next two quarters would be "comparable" to the first quarter's $1.69 billion profit. Last year, pretax profit for the region was $2.3 billion in the second quarter and $2.2 billion in the third quarter.
GM shares fell 58 cents, or 2.5 percent, to $22.35 in afternoon trading. Some analysts said GM's forecast for the next two quarters might have spooked some investors.
'Work aggressively' in Europe
GM's losses in Europe come as the automaker continues restructuring negotiations with its unions there. GM CFO Dan Ammann said GM continues to "work aggressively" to lower costs in Europe while increasing sales there.
Akerson said that by the end of June, GM likely will provide more details about its restructuring plans for Europe.
GM executives have complained about a glut of manufacturing capacity across the European auto industry and are said to be considering closure of one or two plants on the continent.
GM lost $747 million in Europe last year and has lost more than $15 billion in the region since 1999, despite repeated turnaround steps.
China gains continue
The automaker remains strong in China despite that country's slowing economy. GM's pretax first-quarter profit for its international division, which mostly reflects its China performance, was $529 million, down 10 percent from a year earlier.
GM's first-quarter China sales rose 9 percent, to 745,152 units, including sales by GM's joint ventures there, despite a decline in sales for the overall market.
GM posted an $83 million first-quarter pretax profit in South America. That was down 8 percent from a year earlier but better than the $225 million loss GM posted for that region in the fourth quarter of last year.
GM continues to sit on a pile of cash, part of its strategy to build a "fortress balance sheet" to protect the company in a severe economic downturn. As of March 31, GM had $32.06 billion in cash and marketable securities, down marginally from the $32.22 billion held at the end of last year.
You can reach Mike Colias at mcolias@crain.com.
