General Motors (NYSE:GM) continued to perform strongly in the U.S. as its August sales climbed 10% to 240,520 vehicles helped by Chevrolet Cruze, Chevrolet Equinox and Chevrolet Impala, which grew 19%, 22% and 28% respectively. Overall, the sales for the first eight months of the year are up 3.7% and the automakers’ North American operation remains steady. The U.S. auto market has defied expectations this year with the industry size on course to reach 14.5 million vehicles annually.
Meanwhile, GM and its joint ventures sold a total of 220,996 vehicles in August in the world’s largest auto market, representing a rise of 7.3% y-o-y. For the first eight months of the year, GM has sold 1.8 million vehicles or an increase of 11.2%.  GM China is the most important division for the automaker and contributes around 38% to the stock price as per our estimates.
European Outlook Not All that Bleak
GM, like Ford Motors (NYSE:F), is facing overcapacity issues in Europe due to which its second quarter operating loss ballooned to $361 million or 40% more than that in the first quarter. But there have been some positive developments for the automaker recently. Firstly, it had been able to reach a deal with the labor unions in which GM’s Opel unit will be able to close its Ruesselsheim plant in Germany for 20 days between September and December to meet the shrinking auto demand in the region. Similarly, GM will close two of its plants in the U.K. for a week. 
Moreover, there have been reports which suggest that politicians in Europe are finally waking up to the idea that layoffs and capacity cuts might not be such a bad deal after all given how automakers continue to post losses, something which might force the auto companies to stop their European operations altogether.  So far, the governments and labor unions have largely resisted any kind of job cuts and plant shutdowns. GM is currently locked in negotiations in labor unions in which it plans to shut down its plant in Bochum, Germany after 2016. 
If the steps taken by GM can provide downside protection from its European losses, then the cash flows from its North American and Chinese operations are sufficient to propel the stock much higher.
We currently have a Trefis price estimate of $24.90 for General Motors’s stock, which is about 10% more than the current market price.Notes:
- GM says China sales grow despite slowdown, September 5, 2012, news.google.com [↩]
- GM Vauxhall plants in Britain to close for a week, September 4, 2012, sacbee.com [↩]
- RPT-Europe’s carmakers ready cuts to emulate Detroit, September 3, 2012, reuters.com [↩]
- UPDATE 2-GM’s Opel in talks to shorten working hours, August 16, 2012, reuters.com [↩]