GM’s Q3 profit falls to $1.7 billion on Europe loss Akerson: ‘Solid isn’t good enough’

GM’s Q3 profit falls to $1.7 billion on Europe loss
Akerson: ‘Solid isn’t good enough’
Mike Colias
Automotive News | November 9, 2011 – 7:30 am EST
UPDATED: 11/9/11 8:21 am ET

Editor’s note: An earlier version of this story overstated GM’s streak of profits in Europe. The company had a second-quarter profit there after a first-quarter loss.

DETROIT — General Motors today reported a net profit of $1.7 billion for the third quarter, as strength in North America and China was tempered by losses in Europe and South America.

GM’s net income for the July-through-September period declined 15 percent from the third quarter of last year. It was GM’s seventh straight quarterly profit since exiting bankruptcy in July 2009.

Revenue grew 8 percent to $36.7 billion.

“GM delivered a solid quarter thanks to our leadership positions in North America and China,” GM CEO Dan Akerson said in statement. “But solid isn’t good enough, even in a tough global economy. Our overall results underscore the work we have to do to leverage our scale and further improve our margins everywhere we do business.”

GM fortunes reversed in Europe, where it lost $292 million in the third quarter after posting a net profit in the second quarter. But the loss in Europe was less than the $559 million GM lost there in the third quarter of 2010.

European breakeven delayed

GM now does not expect to break even in Europe for the year before restructuring charges, which had been its goal, GM CFO Dan Ammann told reporters today.

“We obviously have significant macroeconomic challenges to address there,” Ammann said.

Profits in North America rose 3 percent from the year-earlier period to $2.2 billion. Profits at GM’s international division, which includes China, fell 29 percent to $365 million. Ammann said earnings in China were up, but unfavorable exchange rates in other markets curbed profits.

Globally, better pricing helped GM during the quarter, although a shift in mix toward less-profitable smaller cars pinched profits, Ammann said. Sales of smaller cars were weak during the third quarter last year, as GM was phasing out its Chevrolet Cobalt while sales of its replacement, the Cruze, were just beginning.

‘Work to do’

Globally, Ammann said GM increased revenue, market share and pricing, which shows that “customers obviously are seeing the value in the vehicles we’re offering.”

But “clearly we’ve got some work to do getting to profitability in other parts of the world,” he said.

GM lost $44 million in South America during the quarter after posting steady profits of around $100 million or $200 million there in recent quarters. In the third quarter of 2010, GM had posted South American profits of $163 million.

The automaker is in the process of replacing its aging product portfolio there, including an ongoing launch of the Cruze and a new version of the Cobalt.

GM Financial posted a third-quarter pretax profit of $178 million. It was not a subsidiary a year earlier.

Brisk U.S. sales

The North American profits that represent the bulk of GM’s third-quarter earnings reflect the automaker’s U.S. sales, which have outpaced the industry so far this year. Sales have been buoyed by brisk sales for new vehicles such as the Chevrolet Cruze and Buick Regal, as well as production shortages at its Japanese rivals.

Through October this year, GM’s total U.S. sales rose 15 percent, versus 10 percent for the industry. U.S. market share rose to 19.8 percent from 19 percent, according to the Automotive News Data Center

But GM’s sales cooled in October — rising just 2 percent, versus the industry’s 8 percent increase. That has led some analysts to question whether GM’s gains of the past 10 months have staying power as Toyota and Honda rebuild inventories.

Some also have expressed concern about GM’s inventory, which rose sharply in October to an 82-day supply of vehicles as of Oct. 31, from 67 days a month earlier, according to GM. Bloated inventory levels could force GM to increase incentives, which would pinch profits.

Still, GM’s strong balance sheet and improved product lineup put it on much firmer footing than even a year ago, analysts say.

In an Oct. 27 note to investors, Moody’s Investors Service cited GM’s “increasingly competitive North American product portfolio” and its strength in China as two key reasons for raising GM’s credit rating one level to Ba1, one notch below investment grade.

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