GM Q3 profit falls 14% on weak Europe, higher N.A. costs
End of European losses predicted for mid-decade
Reprints
Print
Respond
DETROIT -- General Motors posted $1.48 billion in net profits during the third quarter despite wider losses in Europe, where GM now vows to break even by the middle of this decade.
GM's net income fell 14 percent for the July-September period, even though production and pricing rose at its two largest divisions: North America and international, which includes China and other Asian markets.
Europe was a big reason for the decline in third-quarter earnings, the company said today. GM lost $478 million there, compared with $292 million a year earlier. GM's European production plunged 27 percent during the quarter as its Opel unit reduced company-owned inventories.
GM said it expects to lose $1.5 billion to $1.8 billion in Europe for the full year, more than double the $747 million it lost there last year, and predicted "slightly better" results next year. The company said it hopes to break even on the troubled continent by "mid-decade." GM has now lost more than $17 billion in Europe since 1999.
Another reason for the third-quarter profit dip was an unfavorable sales mix: GM sold more small vehicles, which are less profitable. In the United States, for example, Chevrolet sold 56 percent more small and compact cars than it did in the third quarter of 2011.
Still, investors cheered GM's results, sending shares up $2.08, or 9 percent, to $25.36 in afternoon trading on the New York Stock Exchange.
Excluding one-time items, GM earned 93 cents a share, far above the 60 cents analysts polled by Thomson Reuters I/B/E/S had expected. Profits in the North American and International units came in above analysts' forecasts.
International, South America up
Global profits before interest and taxes, and excluding any one-time items, were $2.3 billion, up 5 percent from a year earlier.
"This was a solid quarter for GM in almost all respects," GM CEO Dan Akerson told analysts during a conference call.
GM's profit in its international division -- which includes China, Korea, Australia and several emerging markets in Asia -- jumped 89 percent to $689 million on higher prices and production volume.
In South America, GM swung to a $114 million profit before interest and taxes, reversing a $44 million year-earlier loss. CFO Dan Ammann said he expects GM to win back lost market share in South America, which fell to 17.9 percent, from 18.7 percent a year earlier, with a spate of new vehicle launches there.
GM Financial's profit before interest and taxes rose 12 percent to $200 million.
Rising losses in Europe and weaker unit sales also hurt Ford Motor Co. The automaker yesterday reported a 1 percent decline in third-quarter net income, to $1.63 billion. Chrysler Group on Monday said its quarterly profit rose 80 percent to $381 million.
'Green shoots'
GM Vice Chairman Steve Girsky told analysts GM's new breakeven target in Europe does not count on a big economic comeback or market share gains over the next few years. He said GM is forecasting 2015 industry sales will be "less than 5 percent" above this year's depressed levels.
Rather, GM is developing products to enter new segments and is working to reduce costs and run Opel more efficiently, said Girsky, GM's interim head of Europe. This year Opel has eliminated 2,600 jobs, most through attrition and early retirement, he said. A spokesman said GM cut both hourly and salaried positions.
"We're developing a plan that is not highly dependent on the external environment dramatically improving over the next several years," Girsky said.
Any additional plant closures in Europe would be "incremental" to achieving GM's breakeven forecast, Girsky said. GM has been negotiating with European unions on ways to reduce capacity and plans to close its Bochum, Germany, assembly plant by 2016.
Girsky said he has seen several "green shoots" sprouting at Opel that give GM hope for a turnaround. He cites "modestly improving" consideration for the Opel brand in Germany, improving retail sales for the Vauxhall brand in the United Kingdom and a favorable response to the Mokka subcompact crossover and Adam small car, both of which will be launched early next year.
Cuts in pension liability
GM said that roughly 30 percent of the 42,000 U.S. salaried retirees who were offered a lump-sum payout of their pensions accepted the deal, a higher take rate than the company had expected.
GM said that will eliminate $29 billion in pension liability, up from the $26 billion the company forecast in June when it announced the offer.
The company said it would make a cash contribution to its U.S. salaried pension plan of about $2.6 billion and take a related pre-tax charge of about $2.9 billion in the fourth quarter.
Ammann said that it's too early to gauge the financial impact of this week's massive storm in the Northeast, but that he expects a "modest" impact on GM's U.S. sales.
Reuters contributed to this report
You can reach Mike Colias at mcolias@crain.com.
