GM's Q4 profit: North American pricing helps, Europe hurts

DETROIT -- Stronger pricing and increased sales in North America drove General Motors' net profit to $7.6 billion last year, even as the worsening picture in Europe hurt its fourth-quarter results.

Net income for the October-December period fell 7 percent from the year-earlier period to $472 million, the automaker said today. A $562 million loss in Europe -- the steepest of the year there -- weighed on the automaker's bottom line. North American earnings nearly doubled in the quarter.

The results magnified the pressure on GM to stem the red ink at Opel, its European unit. The losses there came despite a restructuring begun more than two years ago that resulted in $900 million in restructuring costs through Sept. 30, including 5,800 job cuts, according to a regulatory filing.

'Unacceptable'

CEO Dan Akerson called the loss in Europe "unacceptable" and said GM is "looking at everything in order to achieve a better breakeven point."

GM is in talks with European unions over potential job reductions and possible plant closures, Reuters has reported, though GM executives didn't discuss specifics during a conference call with analysts today.

Akerson compared the situation in Europe to the economic crisis that gripped the United States in 2008-09. He believes European labor unions understand that "there's been a material change in the outlook for the European economies generally."

He said: "We have to match capacity with demand, and demand has been falling."

While GM's performance in Europe worsened late in 2011 amid the continent's economic troubles, the automaker trimmed its full-year losses there to $747 million, from $1.95 billion in 2010.

Revenue, profit up

GM's fourth-quarter net income included several one-time gains and losses. GM recorded a $749 million gain in November for shifting retiree health-care expenses in Canada into a trust. It also recorded goodwill impairment charges of $621 million in Europe and $258 million for its GM International operations unit, primarily China, and $555 million related to investments in Ally Financial, GM's former captive finance arm.

Stripping out those one-time events, GM said its profit would have been $900 million.

Fourth-quarter revenues rose 3 percent to $38 billion.

The 2011 net profit of $7.6 billion compares with 2010 earnings of $4.7 billion and was padded by a $1.6 billion gain on a first-quarter sale of stock that GM owned in supplier Delphi Automotive. Revenues for the year rose 11 percent to $150.28 billion.

GM's fourth-quarter results marked its eighth straight quarterly profit since its July 2009 emergence from a U.S.-steered bankruptcy.

Continued strong N.A. pricing

GM's North American profit in the fourth quarter rose 84 percent to $1.50 billion on stronger pricing and lower costs. Speaking to reporters at GM's headquarters today, CFO Dan Ammann said he expects pricing in North America to remain strong this year.

In South America, GM lost $225 million, its second straight quarterly loss there after several profitable quarters. Ammann blamed the losses on cost pressures and an aging product portfolio, which should improve when GM launches several new vehicles this year. For the year, South America swung to a loss of $122 million from a profit of $818 million in 2010.

GM's International Operations, led by its operations in China, recorded a $373 million profit in the fourth quarter. It posted a net profit of $1.90 billion for the year, down 16 percent.

GM shares today closed at $27.17, up 9 percent, following the report. GM's stock price has rallied this year, after sinking to a low of $19.05 in mid-December -- 44 percent below the close on its first day of trading on Nov. 18, 2010. GM shares closed at $24.93 on Wednesday and are up 23 percent for the year.

This year's outlook

Offering a broad forecast for 2012, GM said it expects industry sales volume worldwide to grow, while its global market share will be roughly flat after growing by 0.4 percentage points to 11.9 percent last year. Costs also will be flat, while pricing will be up, GM said.

In North America this year, Ammann said he believes strong prices will help to offset profit pressure from a shift in GM's product portfolio away from trucks and toward less-profitable small cars, such as the recently launched Chevrolet Sonic and Buick Verano.

Those factors would continue a trend from 2011. In the fourth quarter, improved pricing from a year earlier tacked on about $800 million to GM's pretax profit. But the shift toward smaller vehicles eroded profits by $600 million vs. 2010.

GM Financial posted a pretax profit of $170 million in the fourth quarter, bringing its full-year pretax profit to $622 million, up from $129 million a year earlier.

Pension changes

GM said its funding shortfall on its U.S. pension grew in 2011 to $13.3 billion, from $11.5 billion at the end of 2010, largely because lower interest rates reduced the pension fund's interest income. Its U.S. defined-benefit pension plans ended the year 88 percent funded, vs. 89 percent a year earlier.

During the year, GM shifted more of the plan's assets to less risky investments -- reducing its equity holdings to 14 percent from 29 percent, for example.

On Wednesday, Feb. 15, GM said it will freeze the defined-benefit pension plan for salaried workers and move them to a defined-contribution 401(k) plan, effective Sept. 30, while also offering new retirees a lump-sum payout -- both moves aimed at reducing its future pension obligations. The pension-plan change affects salaried workers hired before Jan. 1, 2001; those hired since then already are covered by a defined-contribution plan.

Ammann wouldn't comment on whether GM is considering offering a lump-sum payout to hourly retirees, saying only that GM is reviewing other options to reduce its exposure to pension costs.

As a result of GM's quarterly results, the company will pay profit sharing of up to $7,000 to approximately 47,500 eligible U.S. hourly employees.