Tag Archive | "General Motors Co."

G.M. Posts Quarterly Profit, but Chief Calls It Insufficient

DETROIT — General Motors reported its seventh consecutive quarterly profit on Wednesday but stressed the need for more cost cutting as profit margins declined. It also warned of a more difficult end to the year than Wall Street was anticipating.

G.M. said its third-quarter profit fell 12 percent, to $1.73 billion, or $1.03 a share, largely because of higher marketing and engineering costs. Revenue increased 8 percent, to $36.72 billion, but was down about $200 a vehicle, according to The New York Times.

Its chief executive, Daniel F. Akerson, declared the performance “not good enough.” The results compared with $1.96 billion, or $1.20 a share, in the period a year earlier.

The company earned $2.2 billion in North America but lost money in Europe, South America and its “international” division, excluding China, even though sales increased in every region and 9 percent over all. Executives said the carmaker would fall short of its goal to break even this year in Europe, before taxes and restructuring costs, as economic conditions there worsen.

Globally, G.M. said, fourth-quarter profits will be roughly the same as a year ago, which analysts said would translate to more than 40 percent below their estimates.

G.M. shares, already down 39 percent for the year, tumbled 10.9 percent, to $22.31, on Wednesday after the results were released. The drop has delayed the federal government’s plans to sell the 500 million G.M. shares it still owns, allowing the shadow of taxpayer ownership to linger over the company as executives work to make progress in its turnaround. The shares amount to a 26 percent stake.

“G.M. delivered a solid quarter thanks to our leadership positions in North America and China, where we have grown both sales and market share this year,” Mr. Akerson said in a statement. “But solid isn’t good enough, even in a tough economy. Our overall results underscore the work we have to do to leverage our scale and further improve our margins everywhere we do business.”

Rebecca Lindland, an analyst with the research firm IHS Automotive, said G.M. still needs to pare expenses to be successful long term but can only go so far in areas like product development.

“Toyota and Honda products are suffering right now because they were designed under tremendous cost pressure and it shows in cheap interiors and disappointing product reviews,” said Ms. Lindland, who is based in Greenwich, Conn. “G.M. simply cannot afford to sacrifice product for pennies. They must continue to build products that consumers are willing to pay for, and that’s much more likely to require significant investment.”

G.M., which went through bankruptcy protection in 2009 and executed the nation’s largest public stock offering nearly a year ago, has earned $7.1 billion through the first nine months of 2011. Its profit for all of 2010 was $4.7 billion.

On a conference call with analysts and reporters, Mr. Akerson said the losses in Europe and South America were “not sustainable and not acceptable.” G.M. this week appointed a new European president, Karl-Friedrich Stracke, and assigned him the task of speeding the division’s reorganization.

G.M. lost $292 million in the third quarter in Europe, about half as much as a year ago, but it had been profitable there in the second quarter and will continue to lose money there in the current quarter, G.M.’s chief financial officer, Daniel Ammann, said. He declined to say specifically how G.M. would address the situation, with actions like closing factories or cutting large numbers of jobs in Europe.

“There’s nothing that’s off the table,” Mr. Ammann said on a conference call later Wednesday.

Meanwhile, North America, the source of its biggest troubles before bankruptcy, has become its strongest asset, with pretax profits totaling $7.3 billion so far this year, even as sales shift toward small cars that cost less than the trucks and sport utility vehicles that were the lifeblood of the old G.M.

“Clearly, customers are seeing value in the vehicles we’re putting into the marketplace,” Mr. Ammann said. “Our margins aren’t where we want them to be, but we have a pretty clear road map, and we understand where the gaps are.”

In September, G.M.’s 48,500 hourly workers ratified a new four-year labor agreement that gave them bonuses of $5,000 but no wage increases except for those on the entry-level pay scale. G.M. said the deal, which calls for creating or retaining 6,400 jobs and moving some work to the United States from Mexico, increases the company’s labor costs by only about 1 percent a year.

G.M. was the most profitable of the three Detroit automakers in the third quarter. The Ford Motor Company earned $1.6 billion, and Chrysler earned $212 million.

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G.M. to Cut Ties to Saab

DETROIT — General Motors said Monday that it had decided to sever its ties with the Swedish automaker Saab and its commitment to supply it with vehicle components and the 9-4X model because of the risks posed by Saab’s pending sale to Chinese companies.

“Although General Motors is open to the continued supply of powertrains and other components to Saab under appropriate terms and conditions, G.M. will not agree to the continuation of the existing technology licenses or the continued supply of 9-4X vehicles to Saab following the proposed change in ownership as it would not be in the best interests of G.M. shareholders,” said Jim Cain, a G.M. spokesman.

The statement represented a hardening in G.M.’s opposition to the proposed rescue plan for Saab and appeared to lengthen the odds for the brand’s survival. On Friday, G.M. said that it would be difficult to support a sale of Saab if it hurt G.M.’s competitive position in China and other key markets, reported The New York Times.

Swedish Automobile, the struggling company that owns Saab, said it would discuss General Motor’s objections with the company.

“I expect this to happen tomorrow. There are always alternatives but we only have limited time,” the chief executive of Swedish Automobile, Victor R. Muller, told Reuters in a text message.

Pang Da Automobile Trade and Zhejiang Youngman Lotus Automobile have struck a deal to buy Saab from Swedish Automobile, in what amounts to a rescue plan for Saab, which was formerly owned by G.M. The sale, however, awaits approval from G.M., which has preferred shares in Saab and has supplied it with crucial components. In addition, the Saab 9-4X, a crossover vehicle, is based on G.M.’s Cadillac SRX and is built at a G.M. plant in Mexico.

Separately, G.M. said that D.Nick Reilly, the head of its European business, would retire after 37 years with the company and be succeeded by Karl-Friedrich Stracke, chief executive of Opel/Vauxhall.

Mr. Stracke will keep his current title after he takes over as president of GM Europe on Jan. 1, G.M. said. GM Europe comprises Opel, Vauxhall, Cadillac Europe and Chevrolet Europe.

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Former Auto Czar Says Chrysler, GM Far Ahead of Expectations

WASHINGTON — The Obama administration’s former auto czar says General Motors Co. and Chrysler Group LLC are far ahead of what he expected when the government restructured them in 2009.

Steve Rattner served as the administration’s top auto official for six months in 2009. A paperback version of his 2010 book, “Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry,” was released earlier this month with a new epilogue, reported The Detroit News.

“It’s a story with a happy ending,” Rattner said in a recent interview over lunch, noting he sat down with GM and Chrysler’s new CEOs this summer as he updated his account. “The progress that both companies have made since then is really quite remarkable.”

He especially praised the turnaround engineered at Chrysler by CEO Sergio Marchionne, who also runs Fiat SpA.

Last week, Chrysler posted a quarterly profit of $212 million — compared with a loss of $84 million in the third quarter last year — as its revenue jumped 19 percent to $13.1 billion.

“Chrysler is amazing. I would have never in a million years bet that Sergio could do what he’s done,” Rattner said, praising the freshening of Chrysler’s product line and holding the line on cash flow and bottom line. “They had a rough start, because we didn’t leave them with a lot.”Marchionne told Rattner that Chrysler was focused on allocating scarce capital. “Everything is vetted, flicked, scrubbed. There’s continuous analysis of the alternatives and the cheapest way to get an answer,” Marchionne said, according to the new epilogue.

The Treasury extended Chrysler a $12.5 billion bailout, and recovered $11.3 billion. By contrast, it gave GM a $49.5 billion bailout, and has recovered $23.2 billion. At current trading prices, the Treasury would lose more than $13 billion on its GM bailout.

Rattner says in the new material that after GM’s successful IPO in November 2010, he got emotional: “The cameras showed the first trade occurring on the floor of the New York Stock Exchange. I teared up and almost began crying.”

Obama’s advisers had been divided in March 2009 whether to save Chrysler, but Obama was persuaded by Rattner and others to do so — if Chrysler could tie up with Fiat. “He made all the right decisions, stood behind us and I think he deserves credit for it, and that’s what I wrote in the book,” he said. “On autos, (the White House) worked better than I ever would have imagined.”

Rattner said the auto task force told Larry Summers, who was then the head of the National Economic Council, that the government could expect to hold its GM stock “for five to eight years,” based on a study of other government interventions in the auto sector, especially in Europe.

Rattner said GM’s stock could still jump, noting he had mixed feelings about the government’s sale of nearly half of its stake at $33 a share. “The movie’s not over yet. Two years from now, the stock could be at $60 and everyone will say why did we sell any?”

He said he doesn’t believe the government’s 27 percent stake is costing GM sales, and he thinks the government should wait until the stock price rises.
On Monday, GM’s stock fell 60 cents to $25.84, down 2.3 percent.

In the epilogue, Rattner predicts that including the government $17.2 billion bailout of Detroit-based lender Ally Financial Inc., that the “current potential recovery for taxpayers” is all but $10 billion of its auto industry bailout.

“If in the end taxpayers spend $10 billion on the auto rescues, it seems a small price to pay for averting a major economic calamity,” Rattner wrote.

In retrospect, Rattner wishes that the government hadn’t given 10 percent of the equity in new GM that exited bankruptcy to the old GM bondholders. He says those claims should have been “worthless.”

He also said that the auto task force perhaps should have modified GM and Chrysler’s “overly generous pension plans.”

“In my postmortems with auto industry leaders, I was gratified to hear that they felt we had gotten nearly all of it right. Maybe we should have killed GMC, as some had suggested during the restructuring,” Rattner said.

Rattner is managing New York Mayor Michael Bloomberg’s fortune and the funds for his charitable foundation. He also writes a lot of op-eds, regularly appears on TV and makes speeches.

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GM Introduces Center Air Bag for Side Crashes

General Motors Co. will introduce an all-new air bag, mounted to the right side of the driver’s seat to help keep the driver and the front passenger safer during severe side collisions, reported The Detroit News.

The air bag will debut on the 2013 Chevrolet Traverse, GMC Acadia and Buick Enclave, the automaker said Thursday. GM won’t say what other vehicles will get this new air bag in the future, but it’s easy to speculate that a lot of them will. Safety sells and sells well.

No one should be surprised that this air bag was created. Side impacts are one of the biggest challenges facing safety engineers.

Unlike the front and rear of a vehicle, which have crumple zones, breakaway points and fascinating design work that pushes the energy of an accident around the cabin, the side offers only a few inches of metal and glass between people and the vehicle hitting them.

Every carmaker offers at least the minimum of protection with air bags, and it’s quickly becoming standard for cars to come with at least six air bags throughout a cabin.

Some offer eight, 10 or even 12 air bags. But GM’s approach is unique in the industry. The carmaker worked with supplier Takata Corp. for three years to develop the air bag known as the front center air bag.

It’s attached to the driver’s seat and inflates during any side impact or rollover, said Scott Thomas, a senior staff engineer at GM.

The idea was to find a way to help people caught in far-side impacts; in the case of a driver, this would mean the vehicle was struck on the passenger side. Typically, in a far-side impact, a body is violently thrown toward the impact side, toward the center of the vehicle.

In all of the other directions, many cars offer some sort of air bag protection. There are front, side curtain, side and even knee air bags in many cars. Ford Motor Co. recently deployed air bags on seat belts to help distribute force better during a collision.

“This is revolutionary technology,” Thomas said. “We didn’t develop it because of regulations, but because this will benefit GM customers.”

Indeed. GM saw the need for the bag because 11 percent of traffic deaths last year resulted from far-side impacts. U.S. traffic deaths dropped 3.2 percent in 2010 to 32,788 fatalities, according to the National Highway Traffic Safety Administration; they fell, in part, because of all of the safety devices carmakers include in vehicles. There’s still room for more.

So adding another air bag is not just a good idea, it’s one that could very well save lives.

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S&P Smiles on Ford and GM

General Motors Co. and Ford Motor Co. are on the verge of winning back investment-grade credit ratings, nearly seven years after financial meltdowns turned their bonds into “junk.”

On Thursday, Standard & Poor’s Ratings Services lifted GM’s rating by two notches, to double-B-plus, just one step below investment grade. S&P cited two years of solid financial performance by GM and the benefits of its new, four-year labor deal with the United Auto Workers, reported The Wall Street Journal.

The ratings firm said Ford is in for a one-notch bump, also to double-B-plus, once it concludes its own deal with the union, expected as soon as this week.

“This is another external acknowledgment of the progress we are making. We laid out a strategy, and we executed that strategy,” GM’s finance chief, Daniel Ammann, said in an interview.

Last week, Moody’s Investors Service said it is also eyeing GM for a possible upgrade.

The move by S&P represents a redemption for GM, which for generations was known as a reliable investment bet. But it suffered years of decline and was forced into bankruptcy court amid recession and the financial crisis in 2009.

A return to investment-grade status could mean lower interest rates on borrowings by GM and Ford, and could clear the way for some institutional investors to buy their debt.

“I’ve started to dust off my old models to prepare for their triumphant return to high grade,” said Brian Beargie, director of research at Legal & General Investment Management America, which manages a $20 billion portfolio of mostly investment-grade bonds.

GM and Ford saw their credit ratings cut to non-investment grade, or “junk,” status in 2005. At the time, the companies shared many of the same problems: sinking U.S. market share, too many underused factories, crushing retiree health costs an over-dependence on profit-eroding incentives. But they have taken different roads to recovery.

GM, aided by a $50 billion U.S. government bailout and bankruptcy proceedings, cast off billions of dollars in debt, slashed its work force and shed unprofitable brands and models. After losing more than $90 billion between 2004 and 2009, the auto maker has become solidly profitable, earning $4.7 billion last year. It has around $5 billion in debt, but faces a shortfall in its U.S. and global pension programs.

Beyond its balance sheet, GM sales are up, even though it has eliminated four of its eight brands, and profit per vehicle has been on the rise as the company commands higher prices.

Ford borrowed $23.5 billion in 2006 and was able to turn itself around without a government bailout or a bankruptcy filing. Under Chief Executive Alan Mulally, Ford closed plants, sold off niche brands like Land Rover and Jaguar and put most of its resources into its Ford division.

The company has been working to pare its debt. Ford recently paid down an additional $1.8 billion of long-term debt and now has just $12.2 billion in automotive debt, down from $33.6 billion at the end of 2009.

A Ford spokesman said the company is making progress. “Ultimately, the credit-rating agencies determine when we return to investment grade. Our job is to stay focused on making progress on our plan,” said Ford spokesman Todd Nissen.

S&P analyst Robert Schulz said GM and Ford, while taking different paths, should hold similar appeal to investors. “There are more similarities than differences,” he said. Ford carries a far higher debt burden than GM, for instance, but GM is weighed down by underfunded pension obligations. GM has an advantage over Ford because of the strength of its global operations, while Ford has the edge in the U.S., Mr. Schulz said.

A ratings boosts doesn’t mean the auto makers are in the clear. To return to investment grade, S&P said, the companies must resist the urge to return to big discounts to juice sales amid a depressed auto market and avoid overproducing vehicles.

“The whole idea all along has been to set the company up to deal with any environment we face,” said GM’s Mr. Ammann. “We are prepared.”

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GM Profitable in All Regional Units: CEO

General Motors Co. is now profitable in all of its regional units, Chief Executive Officer Dan Akerson said. That’s a sign of a turnaround for a company whose European Opel unit is still in fix-it mode.

Akerson, speaking at Bloomberg’s Dealmakers Summit in New York today, said GM’s global presence was one of the selling points during the company’s initial public offering last year. In July, Akerson squelched rumors that GM planned to sell Opel. GM was correct to have reversed an agreement to sell its European Opel unit in 2009, he said.

“It was a bad deal,” Akerson said. “We were giving Europe away.”

GM, the largest U.S. automaker, predicts that its European business will be profitable this year, excluding some costs. Losses at the unit were a question mark for investors when the company went public in November 2010, according to Bloomberg.

GM has been cutting capacity in Europe and has hired Detroit consulting firm Alix Partners to help the company find efficiencies in engineering and revenue opportunities in its sales and marketing operations.

Opel earned $102 million in the second quarter before taxes and interest. The German business unit lost $390 million in the first quarter because of $395 million in goodwill impairment costs.

GM, based in Detroit, has lost $14.5 billion in Europe since 1999. The automaker in 2009 agreed to sell 55 percent of Ruesselsheim, Germany-based Adam Opel GmbH to Magna International Inc. and partner OAO Sberbank, before reversing course in November 2009.

Akerson appeared at the gathering with JPMorgan Chase & Co. Vice Chairman James B. “Jimmy” Lee. JPMorgan, Morgan Stanley, Bank of America Corp. and Citigroup Inc. led the GM IPO.

“Investors liked the story,” Lee said of the GM offering, which was originally priced at $26 to $29 a share before being sold at $33. “Another piece of the puzzle was new management. Investors said, ‘This was a new bunch of guys running this company.’”

GM’s goal for Europe is to be “profitable by just better than break-even before restructuring charges,” Nick Reilly, president of GM Europe, told reporters Sept. 13 at the Frankfurt auto show.

“In 2012, we won’t have those restructuring charges,” Reilly said at the time. “They’re mostly done. We’ll get the full 12-month benefit of the restructuring that we’ve done.”

GM rose 11 cents to $21.19 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have slid 36 percent from their IPO price.

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