DETROIT -- General Motors’ fourth-quarter profits fell, reflecting more red ink in Europe and a swing into the red in South America. GM predicted higher revenue in 2012, but didn’t say whether it expects its profits to rise.
Here’s a look at six issues to watch at GM in 2012.
With GM’s European operations mired in losses and in turnaround mode, the automaker must lean more on its North American operations to drive profits. And the keys to more robust North American profits are volume and pricing.
A year ago, GM’s first-quarter profits were dinged by higher marketing costs and incentive spending. GM’s U.S. light-vehicle sales rose 13 percent last year, outpacing the market’s 10 percent rise. And new models helped GM’s average transaction price rise more than $1,100 last year, while incentive spending dropped 5 percent, TrueCar.com says.
But in January, GM’s U.S. volume dipped 6 percent while the overall market continued a steady climb, rising 11 percent. While U.S. sales are forecast to rise in 2012, the market also promises to be more formidable for GM as Honda and Toyota benefit from better car and light-truck inventories.
GM’s success will be measured by how much it boosts profit margins above 5 percent in North America. GM’s controversial 2009 government bailout figures to remain in the spotlight during a heated presidential election.
Sales growth is slowing in China, GM’s biggest market. But the automaker is maintaining an ambitious plan to expand its product lineup and add more capacity in China -- moves that will require additional capital and human resources.
The headwinds in China will grow as more automakers -- notably Ford, Toyota and VW -- introduce more models and add factory capacity.
Longer-term, GM and other foreign automakers must confront the lack of control over their joint ventures in China. GM’s lead position and profits in China could be compromised by changes in product regulations and intellectual property rules.
Europe -- a perennial millstone for GM -- has become a bigger wild card given the austerity measures sweeping the continent and the unfavorable impact on industry sales. The economic environment provides GM with fresh ammunition to radically revamp Opel and position it for long-term profitability. Job cuts and plant closings are on the table.
One thing is clear: GM CEO Dan Akerson remains impatient with the situation and has sent a corps of senior executives to devise a restructuring plan with teeth.
It’s the year of the car at GM as the automaker launches three key sedans in 2012: the Chevrolet Malibu, and the Cadillac XTS and ATS. It also will benefit from the late-2011 introduction of the Buick Verano.
Expanding Cadillac and Buick and commanding higher transaction prices are essential to improving GM’s financial results. Can GM match the successful rollout of the Cruze, a compact still benefiting from strong demand and modest incentives?
GM’s big pickups are nearing the end of their current life cycle, and the extent to which the automaker must discount the high-volume Chevy Silverado and GMC Sierra this year to maintain volume will weigh heavily on 2012 profits.
GM has scheduled 28 weeks of downtime at its U.S. pickup plants to change over to new models due in 2013. The changeover will require a delicate balancing act from GM. The automaker doesn’t want to be left with too many old pickups before the restyled models debut in 2013, because that could force GM to offer profit-sapping incentives. But it is eager to capture its share of sales as industry volumes continue to rebound.
GM is also banking on the refreshed GMC Acadia and Buick Enclave to add incremental sales to the aging but still popular crossovers.
GM is aiming for what it calls a “fortress” balance sheet -- one that will allow it to keep all product programs on schedule during the next down cycle. The extent to which it can generate cash, trim its pension obligations and defer taxes will determine how much better its books become.
At the end of 2011, GM had $31.6 billion in cash, up from $27.6 billion a year earlier, and $5.3 billion in debt, up from $4.6 billion. GM continues to take steps to de-leverage its balance sheet, such as plans announced this week to shift salaried workers from a traditional defined-benefits pension plan to a 401(k) defined-contribution program.
Analyst Adam Jonas of Morgan Stanley estimates GM, with strong earnings and low tax payments, could have $74 billion in net cash by 2016.