EarningsCenter

General Motors
In its second quarter, General Motors (GM) beat analysts' estimates with a profit of $1.5 billion, as losses in its much-troubled European division were less than many experts had predicted.

That wasn't necessarily good news, though. It's a billion dollars less than GM earned in the second quarter of last year. That's a huge drop, and it reflects the big headwinds now facing the world's largest car company.

Europe's Not Getting Better Anytime Soon

GM's profit was better than expected because its European division, which includes money-losing German subsidiary Opel, reported a loss of $361 million. While that's a big drop from the $102 million that GM made in Europe a year ago, it's much less painful than the more than $500 billion that many analysts expected it to have lost after rival Ford (F) reported a shocking $404 million loss in Europe last week.

But that doesn't mean GM's long-troubled European operation is on the mend -- not yet, anyway. GM's dealers in the region have too many cars and trucks in their inventories. GM's European factories will likely have to reduce production through the rest of 2012 so that dealers can sell off existing stock. That means even lower income for the company in the second half of the year. Meanwhile, GM's costs remain high because it has too many European factories and not enough orders to keep them all busy.

GM is working on the problem. It replaced its Europe chief with a turnaround specialist, and hired two key executives from Volkswagen (VLKAY) to fill important senior-level roles. Meanwhile, GM officials are negotiating with union leaders in Germany, planning to close one or more factories and cut costs in a number of other ways.

CEO Dan Akerson said on Thursday that he expects a deal with the unions to be announced sometime this fall. That will be a welcome development, though any actual savings from the agreement could still be several years off.

Concerns Mount at Home

GM's problems go far beyond Europe, though. While its Asian operation remains healthy and profitable despite a slowdown in China, GM's slipping market share in its most important market -- the United States -- is starting to become a concern.

GM's market share fell to 18.1% in the first half of 2012, down from almost 20% just a year ago. But that's not the only problem. GM is spending more on incentives -- those "cash back" or low-cost financing deals that dealers love to advertise -- to keep its sales numbers going.

The real problem is that many of GM's products are dated: They're no longer competitive with the best cars and trucks on the market. GM wasn't able to invest in product development during its spiral into bankruptcy, so it lost a lot of ground to rivals like Ford and Toyota (TM).

Because a new car or truck can take three years or longer to develop, GM has had few new products since its bankruptcy -- while Ford, which had borrowed heavily before the economic crisis and was able to keep up its spending, has rolled out a series of hit products like the Explorer and Focus.

GM has a bunch of new vehicles coming, including all-new pickups and SUVs that are due early next year. That should help GM make up some of its lost ground without heavy spending on incentives. But meanwhile, the pressure to improve sales is immense; it may be part of what drove Akerson to fire his marketing chief, Joel Ewanick, earlier this week.


Taxpayers Can Still Break Even

GM's profits in its North America division will likely be lower in the third quarter, it said. That's partly because it shifted some spending to summer from spring -- in part, to buy more ads around the Olympics. That's not a big source of concern, but if profits dip more than expected, GM's stock price will likely suffer further.

Despite the concerns, post-bankruptcy GM is still fundamentally healthy. Its debts are low, it has more than $30 billion in the bank, and it has now booked 10 consecutive quarters of profits. But its low stock price means that the federal government is unlikely to sell its stake anytime soon, and that remains a source of frustration for GM's leaders and for many Americans.

GM's stock price is likely to rise quite a bit in time, as the company reduces costs in Europe, gets its new products to market, and continues to improve its operations around the world. Akerson and his team are mostly doing the right things, even if they're hard to see right now. With luck, GM's stock will rise enough that taxpayers can break even, or even profit -- and bring GM's unfortunate "Government Motors" chapter to a close.

At the time of publication, Motley Fool contributor John Rosevear owned shares of Ford and General Motors. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors and have recommended creating a synthetic long position in Ford.


Increase your money and finance knowledge from home

Economics 101

Intro to economics. But fun.

View Course »

Intro to different retirement accounts

What does it mean to have a 401(k)? IRA?

View Course »

Add a Comment

*0 / 3000 Character Maximum

17 Comments

Filter by:
PacificGatePost

The real story hasn't been told by the MSM on Obama and GM.

The biggest heist in U.S. government history was played out in broad daylight. Such assault on laws, and corporate governance should have repercussions.

http://floppingaces.net/2012/08/22/the-obama-general-motors-duplicity-reader-post/

August 24 2012 at 12:37 AM Report abuse rate up rate down Reply
mdmichel8888

good job GM................SOLIDARITY FOREVER

August 04 2012 at 1:50 PM Report abuse -1 rate up rate down Reply
OhReally

How's that union and government management working? Oh yeah - they still owe the taxpayers $42B dollars.

August 03 2012 at 10:27 PM Report abuse -3 rate up rate down Reply
richard

imalibnow is a troll for Rush Limbaugh.

August 03 2012 at 5:25 PM Report abuse +2 rate up rate down Reply
chris1011

Dearest Diary;
For Pete’s sake it was never meant to be like this.
I was meant to win on Romneycare but my own party sabotaged me.
I have the hair, the Grecian formula look with the deliberate distinguished white temples. The picture postcard family that looks anachronistically odd and associates with shady business people; but could pass as the virtuous looking version of the Osmond’s.
I’m a job creator damn it, a successful tycoon so why aren’t you all taking that on face value and bowing and scraping as I’m use to?
Why must you pry and pry until I’m too embarrassed to run on my planned lies and woefully flat singing.
It’s un-American of you all to expose my very shallow veneer of lies that I lovingly crafted over the decades for my vanity run for president damn it.
I even fired the best, cheap team of illegal-aliens I ever had working on my garden in one of my many blue state located homes, I hope they’re available next year? (Seriously, you wouldn’t expect me to live in a red state would you, they’re so backward and full of uncouth people).
Life’s so unfair and if I was born with emotions I’d be devastated at how short a time my cleverly crafted illusion took to crumble and vanish.
Who’d have thought journalists paid by my major backers would collude in telling the truth about me. I feel betrayed now on all sides.
I can’t even run on my term as governor because that’s full of landmines buried barely beneath the surface and if I place the toe of one of my Gucci loafers in that direction. Boom! Just like Wile. E. Coyote and Obama going meep! meep! As he speeds off!
It was never meant to be like this. I have the rugged good looks of a President of America in a made for TV Canadian movie.
I’ve turned off the entire African American, Latino and Center of America and most women especially when I followed it up by calling them freeloaders after free stuff on several occasions.
How come every insult and duplicity I make gets reported on? It’s like someone invented a machine that can record sound and even motion pictures.
Anyway I’m going to stay in denial and keep saying the irrefutable truth is a lie. Because I’m Mitt Romney, CEO, born into privilege and no upstart with integrity is going to besmirch my name. Especially with the truth!
Me 2012
Because it’s my turn.

August 03 2012 at 4:24 PM Report abuse +5 rate up rate down Reply
rich

Once again the Unions are strangling a major company (GM). They can't reduce (lay off workers) without asking permission from the union which will take years, if ever to, execute. What a joke! The company is headed back to insolvency which could cost every one their jobs but the greedy bastards don't care. The problem still exists in the U.S.
If you buy Honda, Toyota, Hyundai, Kia and several other brands you buy cars manufactured in the U.S. by American workers. Even Mercedes and Volkswagen are building factories here to get away from the chocking unions.
Check where many, if not most, cars from GM and Chrysler are made. You will be shocked to find they are imports!

August 03 2012 at 1:08 PM Report abuse -2 rate up rate down Reply
1 reply to rich's comment
richard

Why are you so anti-American? Those Japanese transplants are mostly temp workers, with no health insurance, or other benefits. Is that the kind of future you Asia supporters want for our kids? Detroit built the middle-class, and know-nothing clowns like you, make Asia laugh at America, and the idiots who buy all that Asian garbage. If you want to support Japan and Korea instead of the USA, do us all a favor, and move over there.

August 03 2012 at 4:23 PM Report abuse +2 rate up rate down Reply
tj1108

GM is now in the hands of the Goverment. You cant believe any of their earnings reports good or bad beacuse with the Govt its always manipilated (and complicated beyond belief) more than the private sector. Look at Ford;s stock value if you want to know the status of the auto industry.

August 03 2012 at 11:17 AM Report abuse rate up rate down Reply
2 replies to tj1108's comment
craigmrfrn

Yes, and there is no global warming and we didn't land on the moon.

August 03 2012 at 12:50 PM Report abuse +1 rate up rate down Reply
Plato

Since GM's stock IPO, it is at the same point as Ford---both have lost the exact same percentage !!! Plus, Ford carries heavy debt, GM DOES NOT----compare the enterprise value of ALL the auto manufacturers---ALL of them, EXCEPT GM, carry heavy debt. One more crisis, say the Eurozone breaking up, could send ALL the automakers, EXCEPT GM, into bankruptcy. GM took its big hit---next time, ALL the others will be decimated !!!!!

August 05 2012 at 8:22 PM Report abuse rate up rate down Reply
lchap17156

And who was the rocket scientist that decided to invest in Peugeot? Good luck GM.

August 03 2012 at 9:35 AM Report abuse +1 rate up rate down Reply
marine1942

Should make a bunch of profit as they don't pay income tax thanks to Obama.

August 03 2012 at 9:26 AM Report abuse -1 rate up rate down Reply
1 reply to marine1942's comment
tj1108

I thought Obama wanted corporations to pay more taxes. Maybe its only Corporations that are in his pocket that get off scott free. Thats the way Socialism usually works.

August 03 2012 at 11:19 AM Report abuse rate up rate down Reply
thefacts22

Most people do not want to buy a car that has an obama print on it.

August 03 2012 at 8:03 AM Report abuse rate up rate down Reply