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Is General Motors a Good Pick Even After a Poor Quarter?

April 28, 2014 | About:
Suravi Thacker

Suravi Thacker

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Consumer spending in the U.S. increased 0.3% for the month of February. This increase came after a 0.2% surge in January. This indicates that as severe winters have passed, people have started spending more. This surely brings in good news for the retailers. The automobile players too should benefit from this improvement in spending.

General Motors (GM), one of the largest automobile players, is also one of the beneficiaries of rising demand for vehicles. The car maker recently posted its first quarter numbers which were ahead of analysts’ estimates.

Details of the Quarter

Revenue for the quarter inched up by 1% to $37.4 billion over last year’s quarter. On the other hand, earnings dropped 86% to $0.06 per share as against the earnings of $0.58 per share a year ago. Despite the fall in earnings and the not-so-good revenue appreciation, investors were pretty happy with the results, sending its share price higher.

This is mainly because the company actually posted profits despite a host of problems faced during the quarter. First, the automotive retailer had to recall 7 million of its vehicles since it had safety and quality issues, causing accidents and deaths of some people. This led to a charge of $1.3 billion during the quarter. Also, restructuring costs related to the European region led to a cost of $300 million. Lastly, change in valuation of Venezuelan currency led to a one-time charge of $419 million.

These costs are non-recurring in nature. Hence, they are not expected to occur again. Moreover, it is remarkable on General Motors’ part to have registered a positive bottom line even though it had to bear such high costs. Excluding one-time charges, the retailer’s earnings were at $0.77 per share, much higher than the prior year’s quarter.

Global sales during the period stood at 2.4 million trucks and cars, an increase of 2.3% over last year. Although sales from the American region were lower as compared to last year, revenue from China and Europe rose 13% and 1%, respectively. The company benefited largely from recovery in Europe as well as from its list of new product launches.

Benefits from Last Year Should Continue

Even though General Motors had a difficult quarter, it was an exception. The company should now continue to benefit from the growing demand for its products. In fact, the car manufacturer witnessed a great year in 2013 wherein its launch of Cadillac became very popular among customers. Since the car caters to high-end customers, it has a higher price attached to it and provides better margins. Further, it witnessed a growth of 9% over last year. Hence, success of Cadillac should help the company register a higher top line.

Additionally, China has been a great market for automobile players. It is the largest market for vehicles and has been growing for General Motors. Therefore, growing demand in China should prove to be beneficial.

General Motors not only launched Cadillac but many other vehicles which became very popular. For instance, the introduction of full-size trucks led to higher sales. Even these trucks charge a premium and are resonating well with customers.

Summary

Therefore, these launches and a growing Chinese market should prove to be advantageous for General Motors. However, the decline in sales of the U.S. is mainly because of negative popularity of its unsafe vehicles. Hence, it will take time to recover from that. Nonetheless, the company’s upcoming launches of 15 new products in the U.S and 17 new models in China should help attract customers. I believe the company will be able to win back customers’ hearts through its efforts. This car maker is surely worth a look.


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