GM expects retooling will keep brake on profits

May 4, 2012
GM expects retooling will keep brake on profits
Plant changes at home, economic woes abroad spur sedate forecast
By MELISSA BURDEN / The Detroit News
General Motors Co. said Thursday it expects North American profits to remain flat over the next six months because of downtime as it retools factories for new trucks and SUVs.

The forecast comes as the Detroit automaker reports lower first-quarter earnings of $1 billion or 60 cents a share as it continues to lose money in Europe.

The ninth-straight quarterly profit for the Detroit automaker — down 69 percent from the $3.2 billion or $1.77 per share in first-quarter 2011 — was reduced by a $256 million quarterly loss in Europe, where the automaker continues to restructure and where the economy is struggling.

“This management team is not getting ahead of ourselves,” Chairman and CEO Dan Akerson said Thursday during an analysts call. “We are confident in our plan, and we’re pleased with progress in most areas. But we have internal issues we’re fixing. And we’re not immune to industry issues like recession and overcapacity in Europe, or competition that’s intensifying everywhere we do business.”

The first three months of 2012 included a net loss from goodwill impairment charges related to Europe and pension accounting. That cut net income by about $600 million or 33 cents a share, GM said.

Factoring those changes, GM earned 93 cents a share, ahead of analysts’ expectations of about 85 cents a share. GM’s first-quarter 2011 included $1.5 billion or 82 cents of earnings, mainly stemming from selling its interest in parts supplier Delphi Automotive and Ally Financial.

GM is still working on its turnaround plan for Europe, where last year it was on track to turn a profit until late in the year. Instead, GM posted a $747 million loss there in 2011.

Losses are expected to continue for GM in Europe this year, analysts say.

“It’s reasonable that each quarter for Europe should be a loss,” said Adam Jonas, managing director and automotive analyst at Morgan Stanley.

“It’s reasonable 2Q’s loss will be worse than first quarter, especially given the comments GM made about having to reduce more inventory at both the company and the dealer-channel level.”

When questioned about offering buyouts or special attrition programs to employees in Europe, Akerson and Chief Financial Officer Dan Ammann indicated headcount in Europe will be reduced over time. Akerson said some news on Europe related to employees may come out before the next quarterly report.

“We still have not matched production to demand,” Akerson said.

Ammann told reporters that GM’s European restructuring plans won’t come with one big bang, but will continue as an “ongoing set of actions” and that the company still has “a good way to go.”

Jonas said he expects GM to eventually reduce capacity by 20 percent to 30 percent in Europe.

GM’s statements on North American profits through the third quarter would indicate pretax profits of about $5.1 billion through September, lower than the $5.6 billion Citi analyst Itay Michaeli told investors in a Thursday note that he expected.

While GM recently upped its 2012 outlook on U.S. production to 14 million to 14.5 million, it will shut down its truck and SUV plants in North America for a combined 29 weeks this year, which could hurt profits.

Much of the shutdowns will occur in the second and third quarters, the company has said.

“That whole program, including the full-size pickups, the heavy-duty pickups and all the SUVs, easily accounts for two-thirds of GM’s North American profit,” Jonas said. “Changing that over is going to be disruptive.”

The automaker has been building up its truck inventory to handle upcoming downtime at factories and to prepare for growth expected in the second half of the year. Ammann wouldn’t say when the trucks will begin hitting dealerships.

GM stock closed down 2.3 percent Thursday at $22.40 a share.

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