Can General Motors Stand Firm Against its Competitors?

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May 11, 2015

General Motors (GM, Financial) can stand firm against its competitors. The company reported first quarter 2015 net income attributable to common stockholders of $0.9 billion or earnings per share of $0.56 per diluted share. Moreover, the current quarter included a net loss from special items of $0.5 billion or $0.30 per diluted share.

Furthermore, special items in the first quarter 2015 included $0.4 billion on the back of company’s decision to change the business model in Russia and $0.1 billion for an adjustment to the estimated costs of the ignition switch compensation program. In the first quarter of 2014, the company’s net income attributable to common stockholders was $0.1 billion or EPS of $0.06 per diluted share, which includes a net loss from special items of $0.4 billion or $0.23 per diluted share and the impact of recall related pre-tax costs of $1.3 billion or $0.48 per diluted share. Besides this, earnings before interest and tax (EBIT) adjusted was $2.1 billion and this includes the impact of $0.1 billion in restructuring costs. However, in the first quarter of 2014, the company reported EBIT adjusted of $0.5 billion, which adds to recall related pre-tax costs of $1.3 billion and $0.3 billion in restructuring costs. In addition, net revenue in the first quarter of 2015 was $35.7 billion compared with $37.4 billion reported in the same quarter last year.

General Motors' first quarter of 2015 results, provide a solid foundation to achieve the financial commitment for the year. Moreover, continued execution of the plan by the company, which includes capital allocation framework would drive profitability growth, return on invested capital and shareholder value.

General Motors North America adjusted EBIT best since the company was established in 2009 and expanding its core-operating margin for the seventh consecutive quarter on a year-over-year basis. General Motors North America reported adjusted EBIT of $2.2 billion in first quarter 2015 compared with adjusted EBIT of $0.6 billion in the first quarter of 2014, which included the impact of a $1.3 billion pretax charge for recall costs.

Moreover, General Motors Europe increased Opel and Vauxhall share in 11 markets while an improved operating performance appeared despite Russia market challenges. In addition, General Motors Europe reported adjusted EBIT of $0.2 billion in the first quarter of 2015, compared with adjusted EBIT of $0.3 billion in the same period of 2014, which included $0.2 billion for restructuring costs.

To this end, General Motors International Operations reported adjusted EBIT of $0.4 billion in first the quarter of 2015, compared to adjusted EBIT of $0.3 billion in the same period last year of 2014. Moreover, General Motor South America reported adjusted EBIT of $0.2 billion in the first quarter of 2015, which is approximately equal to the same period last year.

The management of the company said key vehicles, which were recently launched as full and mid-sized trucks helped the company in delivering a solid quarter. The company was cost disciplined in the first quarter of 2015. The management continued to take decisive actions to address issues, which are head on and they derived the company to generate strong results.

General Motors has announced its $5 billion common stock repurchase program on March 9, 2015; the company has repurchased 19.4 million shares through April 21. Out of the total, 10 million shares were repurchased through the March 31 trading date for approximately $0.4 billion. The company paid common stock dividends of approximately $0.5 billion to shareholders during the first quarter of 2015.

The conclusion is that General Motors have an objective of generating 20% or higher average return on invested capital through investments in excellent vehicles. Will this strategy work? Maybe or maybe not, but one thing is certain though and that is General Motors seems to be on track and chances are that the company will keep on keeping its head above water. c