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Looking beyond the earnings of General Motors

February 09, 2014 | About:

General Motors (NYSE:GM) came out with its latest quarterly earnings with profitable numbers. The company has taken drastic steps such as changing its management along with formulating policies for its North American market. But Europe continues to remain a pain point for the Detroit auto player.

A quick look at the quarter
The nation’s largest automaker reported $913 million in net profit, up 2% from last year. The company’s saw its global vehicles sales rise 5% over the year ago quarter. General Motors’ North American operations enjoyed solid pretax profit, but its restructuring charges mellowed down the sweet effect of the income. These restructuring expenses are with respect to the American automaker’s effort to lower the losses that it’s suffering in the global market, Europe in particular.

Chevy has been quite disappointing in the European region, and GM, at least for the time being, should think of reconsidering this vehicle in this part of the world. Already billions have gone astray in the past few years, and the continent continues to be a blot in the automakers financials. The tremendous amount lost in the Chevy venture is the company’s latest setback in this region.

The carmaker indeed has plans to drop the Chevy brand by the end of 2015 and concentrate marketing Opel and Vauxhall brands to fix its fate in Europe. Company chief executive Mary T. Barra said that the company is staying committed to its European buyers and promote Opel in Europe while try boosting Cadillac across the globe.

Source: in.reuters.com

Ford (NYSE:F), General Motor’s dearest foe, is in no way better when it comes to the European operations. Local rival Ford also complained of the prolonged slump in this market. Sluggish demand for vehicle has been hurting the automaker’s overall profits.

Investor reaction
Investors did not look that excited with GM’s quarter. The company’s results failed to meet analyst expectations, Europe being the prime reason. This was very clear from the fact that the stock virtually remained flat on a day when the S&P index improved 1.2%. GM is working to keep costs under control, although the company admits that there would be higher spending, primarily severance costs, related to the closing of the Bochum Assembly plant at Germany.

A reason to rejoice
However, on the brighter side, despite European issues, the company has been successfully managing a steady sales gain. Fourth quarter revenues were up 3% to 40.5 billion relative to last year quarter when the company recorded $39.3 billion in sales. For the whole year, the carmaker registered $3.77 billion in net income, down from $4.86 billion that it posted last year. This disappointed investors. But things aren’t as bad. The company managed to pull it off with a decent rise in revenue from $152.3 billion last year to $155.4 billion this year.

My takeaway
Although Europe is eating away profits, the U.S. is compensating for the lower numbers. Demand for pickups and trucks at home gives a solid reason to stay positive on GM’s outlook. Even China, an emerging market and currently the hotspot for auto giants, has lot of exciting things stored in for the automaker. On the whole, I believe GM has an encouraging outlook in the long run.

Rating: 3.9/5 (12 votes)


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