GM Puts Obama in the Driver's Seat
DETROIT (TheStreet) -- General Motors'
There was another winner: President Barack Obama, who committed billions to save GM. As for chief rival Mitt Romney, it was bad timing after a string of bad luck. The Republican presidential candidate recently unveiled new ads in Ohio that focus on job losses that result from the shutdown of GM dealerships as part of its revamp.
The fact is that before it restructured, GM followed an industry model of making too many vehicles at too high a cost and then selling them at too many dealerships for too low a price. That wasn't sustainable.
GM did hit some roadblocks in the second quarter, particularly in debt-ridden Europe. And in July, its U.S. sales fell 6%.
The auto industry is a key focus of the two presidential campaigns, especially given its importance in battleground states Ohio and Michigan, the heart of car manufacturing. Obama campaigned in Ohio Wednesday. Earlier this month, he visited Toledo, where Chrysler makes the Jeep Wrangler and will make the Jeep Liberty.
During the second quarter, GM's net income fell by $1 billion, largely because it lost $361 million in Europe, reversing a year-earlier gain of $102 million. But the automaker still earned $1.5 billion, or 90 cents a share. Analysts surveyed by Thomson Reuters had estimated 74 cents.
On the GM earnings conference call, CEO Dan Akerson said that so far this year, four of five GM segments are profitable. General Motors North America is a "powerful earnings engine with the potential to become even stronger," he said. In Europe, "we haven't moved fast enough, but that's changed," with new management now in place, he said, noting: "Progress always comes faster if you approach unconstrained by the past."
In China, GM remains the No. 1 automaker, although it has been hurt by a shift in buying patterns that favors smaller cars over Chevrolet and Buick. "The overall market continues to be quite competitive with pricing pressure up and down the line," said CFO Dan Amman. In South America, GM is hurt because its production facilities are in high-cost areas near Sao Paulo, while Fiat and Volkswagen have factories in cheaper regions, burdening GM with an annual cost disadvantage of $300 million to $400 million. Further capacity action is planned.
In the U.S., GM's market share has diminished to 18.6% from 20.5% a year ago. But the company's outlook is bolstered by the impending arrival of new products, with 70% of its models scheduled to be redesigned or replaced in 2012 and 2013. Those plans are boosting employment.
In the first half, GM's hourly employment grew by about 2,000 workers to 50,000, while overall North American employment grew by about 3,000 workers to 101,000, according to the company's earnings filing. Spokesman James Can said the bulk of the new jobs are at the Hamtramck, Mich., plant, where the new Chevrolet Malibu is being built, and the Spring Hill, Tenn., factory, where the new Chevrolet Equinox will be made. Next year, GM will add a third shift in Arlington, Texas, to manufacture large SUVs.
Amman told reporters Thursday afternoon that the hiring is "more tactical than anything else given the environment we're in.
"We're cautious on the economic environment, (but) we're not afraid to add people and capacity" when needed, he said.
S&P Capital IQ analyst Efraim Levy, who has a "buy" on GM's stock, wrote Thursday that North America showed strength even as Europe and South America weakened. "Slowing growth is a risk, but U.S. sales are supported by pent-up demand," he said. Jefferies analyst Peter Nesvold said GM beat expectations in North America, Europe and Asia, while missing by a penny in South America. Europe "was the bigger story," he wrote. "GM held pricing despite industry pressures."
In early afternoon trading, GM shares were down 58 cents to $19.08. The automaker said some spending was deferred from the second quarter to the third quarter, potentially reducing third-quarter earnings.
GM will file third-quarter results close to the Nov. 6 election, which could keep Obama riding high. Analysts are estimating that GM will earn 73 cents, a penny less than the second-quarter consensus estimate, but revisions are likely.
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