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GM’s Q1 net falls 14% on N.A. decline

GM’s Q1 net falls 14% on N.A. decline
Cost–cutting gets credit as European losses narrow
Mike Colias
Automotive News | May 2, 2013 – 7:30 am EST
— UPDATED: 5/2/13 12:15 pm ET – adds Akerson comments
DETROIT — General Motors’ first quarter net profit dropped 14 percent, to $865 million, as earnings in North America slipped and losses in Europe narrowed.

GM said product changeovers — particularly the redesigned Chevrolet Silverado and GMC Sierra pickup trucks — dinged its North American profits.

Still, profit for the January-March period marks GM’s 13th straight quarterly profit since emerging from a government-led bankruptcy in mid-2009. The results included one-time costs that shaved $170 million from GM’s net profit.

Earnings before interest and taxes and excluding one-time items, the figure that GM considers the best measure of its results, fell 19 percent to $1.76 billion.

“We are much more of a formidable competitor now than we have been in more than a generation,” CEO Dan Akerson said during a conference call with journalists today. “We’re a very healthy company that’s getting stronger each quarter.”

Shares of GM were trading midday at $31.50, a 4.4 percent increase. Earlier today they reached as high as $31.81 — the highest price since July 2011.

In North America, pretax profit fell 14 percent, to $1.41 billion. GM said weaker pricing and lower production volumes in North America hurt its bottom line by about $400 million vs. a year earlier.

Truck changeover hurts

CFO Dan Ammann attributed the lower pricing and wholesale deliveries to dealerships in part to the changeover to the next-generation full-sized trucks. The company has idled its pickup plants to retool for the redesigned 2014 models, set for launch within weeks, while also offering big discounts on outgoing models. Full-sized SUVs will follow.

GM’s average incentives, measured as a percentage of the average transaction price, rose to 11.5 percent in the first quarter from 10.4 percent a year earlier. GM’s incentives on average were 16 percent higher than the industry’s in the first quarter, the company said.

European pretax losses narrowed to $175 million, from a $294 million loss a year earlier, “thanks to strong cost actions” and sales of recently launched vehicles such as the Opel Mokka small crossover, Akerson said in a statement.

Morgan Stanley analyst Adam Jonas said in a research note that it was the first time the region topped Wall Street expectations in nearly two years and the first year-over-year improvement in results in five quarters.

European breakeven goal

Ammann said GM is sticking to its goal of breaking even in Europe by mid-decade, although he does not see signs of the continent’s recession easing soon.

“We feel good about what we can control. We’ll need to see what happens with the economy,” he said.

Pretax profit at GM’s international division, which includes China, slipped 5 percent to $495 million. GM lost $38 million in South America, after earning $153 million there a year earlier.

Ammann said strong results in China were offset by other markets, including Australia, where he said pricing has been hurt by the weakening Japanese yen.

GM Financial’s pretax profit eased less than 1 percent from a year earlier to $180 million.

GM’s global revenue dropped 2 percent to $36.88 billion.

40 rollouts

Ammann said that the company’s focus is on the more than 40 vehicle rollouts that it plans globally this year, including the rollout of the Silverado and Sierra, among the company’s most profitable products.

“A good start to the year, but we have a huge amount of work to do ahead of us for the balance of the year with all of our launches as we look to build on the momentum of those and look to bring the results of those to the top and to the bottom line,” Ammann told reporters at GM’s headquarters here today.

GM said 26 percent of its U.S. sales in the first quarter were to fleets, down from 27 percent a year earlier.

Its North American factories ran at 98 percent of straight-time capacity, down from 104 percent a year earlier. Overtime can push a factory’s capacity-utilization rate above 100 percent.

More leases, fewer subprime

GM Financial’s U.S. lease penetration rose to 22 percent of finance contracts written, from 13 percent a year earlier. Lease penetration in Canada rose to 10 percent from 9 percent.

Meanwhile, the portion of GM Financial’s sales to subprime customers eased to 7.7 percent from 8.2 percent a year earlier.

GM business represented 51 percent of GM Financial’s loan and lease originations in the first quarter, up from 45 percent a year earlier.

GM’s net also was squeezed by income-tax expenses, which surged 89 percent to $409 million in the latest quarter.

High-speed Internet

Akerson, during his conference call, provided some new insight on GM’s plans for making high-speed Internet available in its vehicles beginning in late 2014.

He said providing 4G mobile Internet access creates “a real revenue-generating opportunity” for GM, allowing the company to charge advertisers to display their logo on a vehicle’s screens, for example.

“With a 4G pipe into a car you can change the business model almost entirely,” Akerson said. “At very little marginal cost, we open up what I think are potentially lucrative lines of business.”

Akerson, a former executive in the telecommunications industry, said he expects GM to generate significant income for providing customers to AT&T, the wireless carrier whose network will provide the data. GM’s OnStar system has not properly capitalized on that revenue stream, he said.

“We do want to change this from primarily a safety and security business to one that’s much more feature-rich, and we can get some real money for it,” he said. “We’ve never been properly compensated for it — having come out of this industry — in terms of what we provide to the carriers.”

Nick Bunkley and Reuters contributed to this report.

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