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Best of 2010 May Already Be Behind GM
Edmunds ^ | 8/13/2010 | Bill Visnic

Posted on 08/18/2010 12:02:47 PM PDT by Qbert

General Motors Co. detailed its second consecutive quarter of profitability after exiting bankruptcy last July. That is a good thing for GM and everything and everybody connected.

But with the economy plodding and U.S. auto sales in lockstep, GM's best days - at least for this year - may already be behind it. In a conference call with reporters and analysts Thursday, CFO Chris Liddell acknowledged it.

"The second half (of this year) will be lower than the first half. You'll see some moderation," in GM's performance, Liddell said.

So while GM generally basked in upbeat media exposure of its $1.3-billion profit for the second quarter, the results seemed somehow underwhelming. In part, perhaps, because glimmering signals chairman and CEO Ed Whitacre sent last week may have created artificial expectations. But more because a look at some details in GM's quarterly financial report reveals aspects of the company's performance that aren't on a particularly positive trajectory.

Pressures Abroad

In an ironic reversal of what had become common at GM in years past, North American operations are the engine of current corporate earnings. In the second quarter, GM earned $1.6 billion in North America.

Meanwhile, however, the company lost $200 million in Europe and International Operations chipped in with just $700 million in gains.

Liddell admitted that in China - the region of seemingly perpetual and explosive expansion for almost all automakers committed there - the industry is slowing and there are new pricing pressures. China has been a gold mine for GM as it leveraged an early advantage over competitors, but the field is leveling at the same time profit margins are narrowing.

GM said the general slowdown in Asia, particularly China and Japan, has been significant, something on the order of 450,000 vehicles.

 Meanwhile, restructuring at the Adam Opel AG unit in Europe is sure to be painful and costly in many ways. The company is seeking a reduction of 8,300 employees by 2013 and may well end up shuttering its Antwerp, Belgium, assembly plant without a buyer. Closing plants and extending thousands of worker separation packages will mean a serious financial hit and a societal black eye.

"We're in a transition phase in Europe," Liddell said, adding that GM won't see any positive impact from the plant closing and workforce reduction until sometime next year. That means a negative impact this year.

In Brazil, another high-potential market, GM is facing stiffer competition, too, Liddell said. Market share in Brazil, at 18.4 percent, is below end-of-2009 levels and well less than in the first quarter of this year. As with Asia, Liddell's acknowledgement of better vehicles from competitors is a reminder that rivals will not be idle while GM restructures.

In all of GM's International Operations, production is up compared with the previous two quarters, but net revenue has declined by a half-billion dollars compared with the fourth quarter of last year, suggesting margins are eroding.

Market Share And Other Metrics

Although GM showed its global market share improved in the second quarter, to 11.6 percent from 11.1 percent in the first quarter, share is flat with the fourth quarter of 2009's 11.5 percent.

But in the U.S., the market-share clouds are gathering as the effect of shedding four brands begins to be apparent. While GM continually points out favorable volume increases compared with last year - the perpetually repeated "selling more vehicles with four brands now than with eight brands last year" screed - market share is another story.

In the second quarter, GM's U.S. market share of 19.4 percent climbed a full point over the first quarter. But the company's market share in the fourth quarter last year was almost a full point higher at 20.2 percent. The North America picture stands at 18.7 percent market share in the second quarter compared with 19.3 percent in the fourth quarter last year.

Volume comparisons with 2009 invariably will be favorable because of the drastically reduced sales in the entire industry, but market share comparisons show GM continues to reign over an ever-smaller piece of the pie.

Incentives also are creeping up, after dropping in the first quarter to near or even below industry averages. After falling to 98 percent of the industry average in March, incentives have been on a four-month climb, to 125 percent of the industry average in July.

According to Edmunds.com's True Cost of Incentives (TCI), a proprietary calculation of incentives, GM's incentives for the second quarter amounted to $3,691 per vehicle sold; the industry average is $2,672.  GM 's incentives have climbed an average of nearly $400 per vehicle since first quarter of this year while the industry average rose only $66 per vehicle sold, according to Edmunds.com. This time last year, GM incentives averaged $776 higher than industry average; currently GM averages $1,018 higher.

Inventory also increased slightly, but only by about 10,000 units compared with the first quarter. Nonetheless, some analysts have suggested close scrutiny of inventory as the second half unfolds; if the economic recovery slows or even reverses, inventories that so far have been well-managed could balloon as slackening demand clashes head-on with plans for increased production.

Production and People

GM has reaped the backhanded benefits of a period of almost total contraction. But after shuttering plants and shedding workers, dealers and brands, the need for renewed capital expenditures to address a market expansion almost certainly will cut into the company's future earnings.

Although GM executives have said ramping up to higher levels of capacity utilization will come relatively inexpensively, it will not come with no expense.

Chuck Stevens, chief financial officer for North America, said that the recent hire of some 2,000 union workers amounted to callbacks of laid-off employees that does not allow GM to take advantage of the newly negotiated, much lower starting wage for newly-hired workers.

And although GM has cut its debt by some $6 billion and improved cash flow in the second quarter to $2.8 billion (compared with $1 billion generated in Q1), GM's pensions remain deeply underfunded at $26.4 billion.


TOPICS: Business/Economy; Government; News/Current Events
KEYWORDS: autos; bailouts; gm


1 posted on 08/18/2010 12:02:49 PM PDT by Qbert
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To: Qbert

The dirty little secret of first half-year’s sales was that majority of these sales were not retail. They were to daily rental agencies.

Not so good.


2 posted on 08/18/2010 12:07:07 PM PDT by fightinJAG (Congress won't stop spending, so I WILL.. . . Starve the beast!)
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To: fightinJAG

Gee won’t the sales of that Chevy Volt really bring GM back?...major sarcasm


3 posted on 08/18/2010 12:09:08 PM PDT by The Great RJ (The Bill of Rights: Another bill members of Congress haven't read.)
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To: fightinJAG

“The dirty little secret of first half-year’s sales was that majority of these sales were not retail. They were to daily rental agencies.

Not so good.”

Yep. And “sales” to the government, too.


4 posted on 08/18/2010 12:13:42 PM PDT by Qbert
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To: fightinJAG

But, but ... don’t forget about the Chevy Volt. GM is going to make lots and lots of money on electric cars.

And GM paid off its debt to the government: in full, with interest, and ahead of schedule.

And, GM is going public again.

GM just shows how wonderful Barack Al-Akbar, the UAW, and the newly enlightened GM management are. It’s all rainbows and unicorns.


5 posted on 08/18/2010 12:22:52 PM PDT by Skepolitic
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To: fightinJAG

...and government purchases............


6 posted on 08/18/2010 12:26:21 PM PDT by Red Badger (No, Obama's not the Antichrist. But he does have him in his MY FAVES.............)
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To: Skepolitic

Be careful, comrade. You may wind up in a Cadillac station wagon...............


7 posted on 08/18/2010 12:27:51 PM PDT by Red Badger (No, Obama's not the Antichrist. But he does have him in his MY FAVES.............)
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To: Qbert

Volt BHO


8 posted on 08/18/2010 12:29:35 PM PDT by FrankR (It doesn't matter what they call us, only what we answer to....)
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To: fightinJAG

There’s another dirty little secret to GM’s first half sales: many of them were to local municipalities. The US government offered various “kickbacks” to local governments that bought GM and Chrysler. So most of your new police cruisers and fire department SUV’s are GM or Chrysler products. Many of these entities order or buy their fiscal year new vehicles in January or February.


9 posted on 08/18/2010 1:15:47 PM PDT by henkster (A broken government does not merit full faith and credit.)
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To: LibreOuMort
and may well end up shuttering its Antwerp, Belgium, assembly plant without a buyer

Is this the plant I think it is, built in the 60s?

10 posted on 08/18/2010 3:38:24 PM PDT by sionnsar (IranAzadi|5yst3m 0wn3d-it's N0t Y0ur5:SONY|TV--it's NOT news you can trust)
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