GM Reworking Strategy as Europe Hurts Profits

Nov. 9, 2011
GM Europe posted a $292 million loss.

As Europe's turmoil and trouble in South America took a bite out of profits, which fell 5.9% in the third quarter, the company Motors warned of cost cuts and job losses on Nov. 9.

Chairman Dan Akerson said that while GM produced a "solid quarter," it's "clear we have a lot more work to do."

"We have challenges in our control and out of our control as we pursue growth around the world," Akerson said.

"We must and shall continue to work for new ways to reduce complexity and contain cost across the world."

GM, maker of the Chevrolet and Cadillac brands, said net earnings in the quarter to September 30 fell to $2.09 billion,, compared to $2.22 billion a year earlier.

Revenues were up to $36.7 billion from $34.1 billion.

After a strong recovery over the past year from the 2008-2009 recession and a government-led rescue, GM predicted that the fourth quarter would show little change from a year earlier, "as a result of seasonal trends in North America and weakness in Europe."

The automaker's once-troubled North American unit is now a major driver of its growth, with earnings up $70 million to $2.2 billion in the third quarter as sales and market share continue to climb.

GM also posted solid growth in China, although revenues in its international unit took a hit and earnings were down to $365 million from $516 million in the third quarter of 2010.

Its Achilles heel is now Europe, which posted a $292 million loss, which was nonetheless a big improvement from the $592 million loss posted a year earlier. GM cautioned that it will not be able to meet its earnings goals in Europe due to "deteriorating economic conditions" but stopped short of announcing any job cuts there as part of its efforts to slash costs and boost revenue.

Despite some promising new products, "we're not expecting to get bailed out by a big ramp-up in volumes in Europe," chief financial officer Dan Ammann said.

"Our assumption is that the market is not going to be improving materially from now and that implies that we need to further reduce the break-even point in order to get where we need to be."

GM has already managed to reduce its South American headcount by 4%t through voluntary departures and "we recognize we've got to go deeper," Akerson said.

While GM may take a restructuring charge in the fourth quarter for cuts needed to deal with the inflationary situation in South America, Akerson said GM is "reasonably optimistic over the intermediate term."

Upcoming product launches should help GM recover some of the sales and market share it has lost in South America, which posted a $44 million loss compared with a $163 million profit a year ago.

Copyright Agence France-Presse, 2011

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