General Motors (GM, Financial) is one of the largest automotive companies which are off late facing a number of problems. Firstly, the company faced a difficult holiday season because of harsh winter conditions and snow storms which hampered car sales. Secondly, General Motors has to recall many cars because of some defect, leading to huge losses.
Nonetheless, it reported a decent first quarter results, which were ahead of the Street’s expectations. Although the numbers were not very attractive, but the fact that the company was undergoing so many problems made it look good.
By the numbers
Although revenue inched up slightly by 1.4% to $37.4 billion, it did not meet the estimate of $38.4 billion. This increase in top line is because of new product launches and the increase in product prices. For instance, price of the Chevrolet Silverado and GMC Sierra pickup trucks rose to $38,765, a jump of $5,000. Further, General Motors wants to maintain the price levels of its pickups, especially the ones which are remodelled in 2014.
However, the company is having a tough time in stirring demand in Europe. Its loss increased to $284 million from $152 million last year. But the growing loss is mainly due to a huge restructuring program undertaken by the company, in order to revive its business in the region.
On the contrary, peer Ford (F, Financial) is witnessing better days. Its revenue from Europe grew for the first five months of 2014. It grew 7.7% over last year and is ahead of the industry average of 7.7%. Also, its market share in the region now stands at 7.9%, higher than last year since it has been able to win over customers’ hearts by launching new products such as Kuga, Mondeo and Explorer. Further, the launch of F-150 and Ecosport are being looked forward to. New global releases such as Mustang are a part of 23 new launches planned for the year. Ford is counting on these new vehicles and is expected to race ahead of its peers.
Some hurdles
General Motors’ bottom line has also suffered a lot because of the recalls made recently. Adjusted earnings dropped 88% to $0.29 per share. The automobile company had to recall a total of 7 million vehicles in the first three months of 2014. The recall included 2.6 million vehicles related to ignition switch recalls. It has already spent $1.3 billion to cover the recall expenses during the first quarter of this year.
This has hampered its sales as well as its market share, which fell to 17% in the U.S., from 17.7% earlier. Also, market share, on a global basis, declined to 11.1% from 11.3% previously. Therefore, General Motors need to fasten its pace of strategies in order to win back its lost market share.
Final words
General Motors had a poor beginning of this year and has faced a large number of odds. However, the automotive industry in the U.S. is doing well. The total number of automobiles sold stood at 1.6 million for the month of May. Hence, it indicates that the market is growing and initiatives taken at this time should help the company stage a comeback. However, investors should not jump to conclusions and wait for the right opportunity.
