General Motors (NYSE:GM) is scheduled to announce its Q3 earnings on October 31. Investors will be eagerly anticipating the numbers to see if there are any signs of improvement in Europe. GM’s Q2 European losses stood at $361 million, a rise of more than 40% from the previous quarter. GM, like Ford Motors (NYSE:F), is bleeding red in Europe while its North American operations continue to remain steady.
The automakers are plagued with overcapacity issues in Europe but the tough labor unions and the governments aren’t allowing the companies to shut plants with excess capacity. The auto market remains very weak in Europe with sales decelerating 10.8 per cent to 1.1 million in September.  GM’s sales were down 16% in the same month.
The coming quarter could be slightly better for GM as the automaker has already struck a deal with labor unions which will allow the company to halt production for as many as 20 days between September and December. Furthermore, to boost its top-line, GM will soon launch a new subcompact named Adam which it unveiled at the recently concluded Paris Motor Show. Europe currently accounts for about 20% of the company’s revenues.
North America, which contributes 60% to the company’s total revenues, has been steady for the automaker with vehicle sales up 3.2% year-to-date. Although the growth rate isn’t the most impressive given the overall performance of U.S. auto market, the numbers come on top of an already high base. Due to the tragic tsunami, Japanese automakers lost some of their market share in 2011 to the ‘Detroit Three’ on account of constrained supply chain.
Profitability could be hurt due to lower sales of the premium priced Cadillac (down 1.3% in September and 8.6% year-to-date). On the other hand, GM could command higher pricing in the fourth quarter with a host of vehicles such as Buick Verano Turbo, Buick Enclave, Chevrolet Malibu Turbo, Chevrolet Traverse and GMC Acadia all lined up this year. 
Mixed Chinese Quarter
GM and its joint ventures have fared well in China in 2012. In fact, GM was the first automaker to reach a milestone of 2 million year-to-date vehicle sales in the country in September. Overall, GM’s vehicles sales are up 10% through September. However, vehicle sales growth decelerated in the third quarter with sales rising 15.0%, 7.3% and 1.7% in July, August and September respectively. September’s performance, in particular, was disappointing since the non-Japanese auto companies were expected to benefit from plunging Japanese sales in the country. 
Sales of Japanese autos were down 29% in September in China due to tensions between the two countries over claims on the disputed islands. So, far the Korean and the German auto companies have been the biggest beneficiaries with BMW’s sales surging 55% in the same month. GM’s average equity income per vehicle sold in China also declined in the second quarter so it will be interesting to see how this quarter pans out for the company. 
We currently have a Trefis price estimate of $25.40 for General Motors’s stock, which is in-line with the current market price.Notes:
- Europe car sales decline accelerating, October 18, 2012, detroitnews.com [↩]
- GM September, 2012 sales [↩]
- GM Sales in China Grow 7.3 Percent, Set August Mark, September 5, 2012, media.gm.com [↩]
- General Motors says September China auto sales up by 1.7 pc, October 8, 2012, economictimes.com [↩]