GM’s Stock Keeps Trucking Higher On Global Growth Ex-Europe

General Motors Company (NYSE:GM) posted its Q2 earnings on August 2 which were negatively impacted by its European operations and a strong U.S. dollar. Total worldwide vehicle sales were up a little more than 3% to 2.391 million vehicles but that could not prevent the revenues from dropping 4% to $37.6 billion. The company attributed almost the entire decline in revenues to the strengthening of the dollar. Net income plunged more than 40% to $1.85 billion,or an EPS of 90 cents.

As expected, Europe was the main culprit posting losses of $361 million in the second quarter itself. GM posted an operating profit of $102 million in Europe last year. Total cars sold by GM in the region are down 6% for the quarter and 7.5% for the first six months of the year. As per recent estimates, GM is only using 66% of its full capacity for production in Europe. And GM is not alone in the European mess. Automakers including Ford Motors (NYSE:F) and PSA Peugeot Citroën SA are reeling with overcapacity issues as well. Ford lost more than $400 million in the recently announced Q2 earnings. Peugeot is planning to cut 8,000 jobs as part of its restructuring process in order to reduce its losses. GM has decided to stop the production of cars in its Bochum, Germany after 2016. ^[1]

What Next in Europe ?

GM has made a slew of leadership changes in Europe. Recently, it appointed Thomas Sedran, a former restructuring consultant, as the interim CEO of Opel. Former Volkswagen executive, Alfred Rieck, was also appointed as the new Vice President of Sales, Marketing and Aftersales in July. GM has also signed a partnership deal with PSA Peugeot Citroen, in which the automakers intend to share R&D costs and build vehicles on a common platform, a move that could potentially help GM save $2 billion annually.

Besides the management changes, GM is also looking to bolster its Opel portfolio. The automaker plans to launch Opel Adam in early 2013. Opel Mokka, a compact SUV, will also be launched at the end of 2012. However, Opel does suffer from a weak brand name in Europe so it remains to be seen whether the new additions could help turnaround its fortunes in the region. The company did not give any guidance as to the kind of losses it expects for the full year.

We currently have a Trefis price estimate of $27.50 for General Motors’s stock, but we are in the process of revising our estimates in order to incorporate Q2 earnings.

North American and International Operations Perform Much Better

GM’s North American operations posted an operating profit of $1.97 billion although that is a decline of 13% from the figure posted in the previous year quarter. Total vehicles sold in the region jumped 4% buoyed by strong Chevrolet sales. However, the automaker’s market share still declined to 17.4% (vs 19.1% in Q2 2011) as it could not keep pace with the overall auto market.

Similarly, operating profits for its international operations remained relatively stable at $557 million, down 3%. Total vehicles sold surged 11% but the margins were squeezed as stronger pricing was more than offset by higher cost of raw materials and other costs related to manufacturing and new product programs.

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1. UPDATE: GM’s Opel Brand Plans to Close Bochum Plant After 2016, June 13, 2012, wsj.com [↩]