General Motors (NYSE:GM) released its fourth quarter and full-year results, which were helped by higher unit sales and improvement in average pricing. However, higher tax expense and restructuring expenses related to plant closures compressed its net income. Total revenues for the quarter rose 3% to $40.5 billion, while adjusted operating income climbed 52% to $1.9 billion. The net income stood at $0.9 billion or 57 cents a share vs 54 cents a share in the previous year quarter. For the full year, GM earned $2.38 per share, compared to $2.92 it earned in 2012, down 18% year to year. 
We have a $40 price estimate for General Motors, which is about 10% more than the current market price. We are in the process of revising our estimates in order to incorporate the latest earnings.
North American Margins Widen
During the quarter, GM’s operating margins in North America stood at 7.5%, a massive improvement of 250 basis points over the fourth quarter of 2012. A slew of model refreshments under Chevrolet and Cadillac brands is helping the automaker post wider margins. GM’s unit sales during the quarter were up 4.4% to 0.86 million units.
With another 15 models to be refreshed or introduced this year, margins as well as unit sales should continue to remain strong. North America accounts for about 35% of the company’s unit sales. In 2013, GM sold 3.2 million vehicles in the region, 7% more than the 2012 figure. 
European Losses Shrink
GM’s European losses declined to $345 million to take the full year figure to $844 million. This is a significant improvement from the $1.9 billion that GM lost in 2012. Unit sales remained flat, which highlights that the automaker is at least keeping pace with the overall automotive industry.
Shrinking demand combined with excess capacity resulted in many automakers posting huge losses in Europe. GM is in the process of adjusting its production to better match demand, including shutting down its Bochum plant in Germany. A word of caution though. The automaker could incur a massive restructuring expense of $650 million in 2014. This is in addition to the operating losses that the automaker is expected to post this year. With leaner and more efficient production facilities complemented by an improving automotive market, GM expects to become profitable in the region by mid-decade.
Chinese Sales Remain Strong
Chinese Sales surged 12.4% to 0.86 million units. Despite selling more cars in China, GM’s equity income declined to $385 million vs $419 million in the fourth quarter of 2012. However, for the full year, net income was up 15.6% to $1.8 billion.
GM is now looking at the luxury car segment in China, since it already has a significant presence in the mainstream car segment. Last year, GM got the government’s approval to build a $1.3 billion plant with a capacity to produce 150,000 units of Cadillac cars locally. With more competitive pricing, GM is targeting a 10% market share in the Chinese luxury market by the end of the decade. As the proportion of the higher priced vehicles increases, average income earned per vehicle could rise even further.
Sales in rest of the world markets were disappointing. Unit sales tanked 10%, as a result of which its operating income declined by more than $500 million during the quarter (on a year-over-year basis). A number of automakers are uncertain about their near-term performances in developing economies due to high volatility that these markets have exhibited lately, fueled to a large extent by the Fed’s monetary policies. Recently, even Ford laid out a cautious guidance, citing currency fluctuations in South America as likely to erode earnings in 2014.
Last month, GM announced that it expects ‘modest’ profit gains in 2014 from the refreshed line-up, which includes 15 new models in the U.S. and 17 in China. In 2014, the net income will also be impacted by the ongoing restructuring expenses, which could swell to $1.1 billion. Notes:
- GM 8-k))
During the quarter, GM’s global deliveries rose 5% to 2.46 million units. For the full year, GM’s unit sales increased 4% to 9.7 million vehicles, including 2.8 million units in the U.S. and 3.2 million in China. ((ref:1 [↩]
- GM 10-k [↩]
- GM Slips After Forecasting ’Modest’ Profit Gain in 2014, January 16, 2014, bloomberg.com [↩]