GM's profit falls 41% to $1.49 billion on European losses
DETROIT -- General Motors Co. today said net profit fell sharply in the second quarter, as widening losses in Europe partially offset "solid" earnings in North America.
Net income attributable to common stockholders for the April-June period dropped 41 percent to $1.49 billion. Revenue dipped 4 percent to $37.61 billion, largely due to the stronger U.S. dollar.
North American pretax profit fell 13 percent from the year-earlier period to $1.97 billion.
GM said it lost $361 million in Europe during the quarter, after posting a rare profit of $102 million there a year earlier. GM's losses in Europe for the first half of the year totaled $617 million, vs. $747 million for all of 2011.
In South America, GM also posted a slight loss, of $19 million, after turning a $57 million profit a year earlier.
"We clearly have more work to do to offset the headwinds we face, especially in regions like Europe and South America," CEO Dan Akerson said in a statement. He noted "solid" results in North America and GM's international division, which includes China.
10 profitable quarters
"Despite the challenging environment, GM has now achieved 10 consecutive quarters of profitability, which is a milestone the company has not achieved in more than a decade," Akerson said.
Akerson has said that stemming the company's losses in Europe -- about $4 billion since GM emerged from bankruptcy in 2009 -- is his top priority.
The European loss was smaller than some analysts had expected amid worsening economic conditions and a budding price war there among automakers.
Joseph Spak of RBC Capital Markets, for example, had forecast a loss of $528 million.
GM CFO Dan Ammann told reporters today that GM has been able to maintain flat pricing in Europe because of the introduction of some new models. He added that recent cost-cutting moves, such as idling some assembly lines, have helped the bottom line.
Ammann wouldn't predict when GM will turn a profit in Europe. Despite GM's restructuring moves, he said the "biggest fundamental driver" of its results will be the region's economy.
GM saw a benefit of $100 million in material and manufacturing costs in Europe as "our cost actions gain traction," Ammann said. The company was also able to offset volume and mix losses from the introduction of higher priced vehicles, he said.
"We still have work to do on both the dealer and the company-owned inventory and we expect to address that through the third and fourth quarters," Ammann said.
He said GM Europe's new leadership team should help improve results in the region.
Last month, Akerson installed Steve Girsky, GM's vice chairman, as head of GM Europe, replacing Karl-Friedrich Stracke. Also last month, GM appointed restructuring specialist Thomas Sedran to run Opel, GM's European unit.
In June, GM said it was negotiating with its union to close its plant in Bochum, Germany, in 2016, when production of the Opel Zafira Tourer compact minivan there runs out. It also plans to launch more new Opel models and to shift some overseas production to Europe to soak up some of its excess manufacturing capacity in the region.
N.A. pricing flat
In North America, Ammann attributed the drop in earnings partly to a reduction in GM's pension income.
Pricing in North America was flat compared with a year earlier, a period that had been marked by big price increases industrywide because of a shortage of inventory stemming from the March 2011 earthquake in Japan. GM's North American earnings had been buoyed for several straight quarters by stronger pricing.
"Being flat year over year -- we think that's actually progress relative to being back in a fully competitive environment and being able to maintain that pricing discipline," Ammann said.
In May, GM said that its North American profits in the second and third quarters would be pinched because of higher costs and from reduced production of its full-sized pickups, as some assembly plants are idled to prepare for next year's launch of GM's next-generation of trucks.
Today, GM said that it's second quarter results "were stronger in part due to the timing of spending that was deferred to the third quarter." That means its third quarter profit likely will be "slightly weaker than expected," Morgan Stanley analyst Adam Jonas said in a research note.
Pretax profit at GM's international division, which mostly reflects its results in China, dipped 3 percent to $557 million, aided by stronger pricing and volumes.
GM Financial's pretax profits in the quarter rose 51 percent from a year earlier to $217 million.
GM ended the second quarter with $32.6 billion in cash and marketable securities, the company said. That's an increase from $31.5 billion at the end of the first quarter.
Stemming losses in Europe is just one challenge for Akerson. He's also grappling with declining market share in the U.S., slowing growth in China and the ramifications of ousting his chief marketing officer, Joel Ewanick, this week. At least four top executives at GM's Opel unit are being replaced.
"People want to get a sense for how bad Europe is going to get," Colin Langan, an industry analyst at UBS Securities LLC, said in a telephone interview. "I don't think many people will disagree it's going to be negative for at least several more years. But it's a question of how negative and how much of a drag it's going to be."
Hedge-fund manager David Einhorn, chairman of Greenlight Capital Re Ltd., said on a conference call this week that GM is poised to rebound because there "is further embedded value."
GM shares today fell 2.5 percent to close at $19.16 on the New York Stock Exchange.
GM's $18.80 close on July 25 was the lowest since the IPO. The U.S. Treasury Department sold 28 percent of GM at $33 a share in the offering and still holds a 32 percent stake, acquired as part of the $50 billion bailout by the Obama administration.
"The biggest fear is the unknown of the macro economy as it relates to Europe," Ammann said in an interview on Bloomberg Television. "No one knows what the bottom is as it pertains to Europe."
Bloomberg contributed to this report.
You can reach Mike Colias at firstname.lastname@example.org.