General Motors Co. (GM), reiterating that it expects to break even in Europe by mid-decade, reported losses in the region that more than doubled last year compared with 2011 and said the market will fall further in 2013.
Those losses detracted from the automaker’s third straight profitable year, driven by the U.S. and China. GM said today that net income fell 33 percent last year to $6.19 billion from a record level in 2011. Pretax losses in Europe rose to $1.8 billion, finishing on the steep end of the company’s October forecast. Since 1999, GM has lost $18 billion in the region.
The continuing economic malaise in Europe also led Detroit-based GM to take a $5.2 billion non-cash impairment on long-held assets and to write down the value of its investment in Paris-based PSA Peugeot Citroen by more than half to about $200 million. While GM is optimistic about new Opel models, such as the Mokka and the Adam, GM shares fell 2.7 percent.
“We see a further deterioration in 2013 in Europe for the industry,” Dan Ammann, GM chief financial officer, said today on Bloomberg TV. “We feel quite good about the things that we do control, the way we go to market, the cost structure of the business. We’re making a lot of changes.”
Troubles in Europe continue to provide distractions for Chief Executive Officer Dan Akerson, 64, who is trying to boost GM’s profit margins, regain lost market share in the U.S., and increase China sales by 75 percent by 2015. The company faces a resurgent Toyota Motor Corp. (7203), which regained the title of world’s best-selling automaker from GM last year.
“Competition remains a real threat for GM,” Christian Mayes, an analyst with Edward Jones, said today in an e-mail. “They are fighting back by revitalizing their product lines, but it remains to be seen if that will be enough to fend off competitors. Japanese automakers are benefiting from a weaker yen, and European automakers are starting to eye the stronger U.S. market to offset sluggish sales in their home market.”
GM fell 3.3 percent, the most in almost a month, to $27.72 at the close in New York. The shares slid 3.9 percent this year through today, while the Standard & Poor’s 500 Index rose 6.7 percent. GM gained 42 percent last year, compared with the S&P’s 13 percent increase.
The company’s fourth-quarter net income rose 65 percent to $1.19 billion. Fourth-quarter profit excluding one-time items was 48 cents a share, trailing the 51-cent average estimate of 16 analysts surveyed by Bloomberg.
Fourth-quarter adjusted earnings before interest and taxes rose to $1.25 billion from $1.1 billion a year earlier on revenue of $39.3 billion, giving the company an operating margin of 3.2 percent. The average estimate of eight analysts was for revenue of $39.2 billion.
While GM devalued its assets in Europe, the company reiterated its goal of breaking-even in the region by mid-decade. It said the move will mean the company will cut its depreciation and amortization expenses this year by $600 million, an accounting boost not factored into to its previously announced 2013 forecast that called for “slightly” better results than 2012.
“If anything, investors should take some comfort in the fact that GM Europe will have $600 million of lower D&A expenses in ’13, due to the impairment of intangible assets,” Brian Johnson, an analyst with Barclays Plc, said today in a note. “This would imply ’13 Europe losses closer to” $1.1 billion to $1.2 billion, rather than $1.4 billion, as he had anticipated.
No one is escaping troubles in Europe where auto sales fell to a 19-year low last year. Ford Motor Co. (F) in January posted a $1.75 billion loss in Europe for 2012 and surprised investors by increasing its European loss estimates to about $2 billion in 2013 from a previous forecast of losses exceeding $1.5 billion.
GM Europe today reported a fourth-quarter loss of $699 million on an Ebit-adjusted basis, compared with $562 million a year earlier. For the full year, GM Europe lost $1.8 billion, compared with a loss of $747 million a year earlier.
The company in October said it expected the full-year operating losses in Europe to total $1.5 billion to $1.8 billion with “slightly better” results in 2013 and targeting break-even by mid-decade. The company had forecast total company profit will rise “modestly” in 2013, with better results in the U.S. during the second half because of costs from introducing new vehicles during the first half.
“They get a modest win if they maintain the view” that this year will be slightly better than 2012, Johnson said in a telephone interview before the release. Ammann told reporters today GM wasn’t revising any of its forecasts.
The U.S. automaker last month hired Karl-Thomas Neumann, a former VW executive, to head its European operations, effective March 1. The automaker has announced plans to cut $500 million in annual costs over the next three years after eliminating $300 million in spending and 2,600 jobs by the end of 2012, mostly through early retirements and voluntary separations.
GM employs 40,000 staff in Europe, with 22,000 of those jobs in Germany. The automaker wants to reduce capacity in Europe by closing a German factory in Bochum as demand for cars in the region shrinks for a sixth straight year. GM has proposed closing the plant two years earlier than previously discussed. The company wants to complete labor negotiations in Europe this quarter, Akerson said.
The company also seeks to improve results in the region through an alliance with Paris-based Peugeot. GM’s write-downs included $220 million of its stake in Peugeot to reflect the stock’s decline. GM paid less than $430 million for the shares last year.
GM, which earned $9.19 billion in 2011, is looking to North America to drive the bulk of its profits in coming years.
The company’s North America adjusted-Ebit fell 6.7 percent to $1.4 billion in the fourth quarter on revenue of $24 billion, giving the region a 5.8 percent operating margin. For the full year, the region’s adjusted Ebit declined to $6.95 billion, down from $7.19 billion a year earlier.
As a result, the company said it will pay profit-sharing of as much as $6,750 to about 49,000 U.S. hourly employees. GM paid workers a $7,000 bonus last year.
The company in the fourth quarter saw improvements in vehicle mix, where results were reduced by pricing, GM said.
U.S. vehicle deliveries rose 4.4 percent in the quarter with help from the GMC Terrain compact sport-utility vehicle and Buick Verano and Chevrolet Cruze small cars, according to researcher Autodata Corp. U.S. industrywide sales gained 10 percent during the period.
“It was actually a quarter of robust growth in the fourth quarter and the fact that GM did not have new product hurt their consideration in the marketplace,” said Jesse Toprak, an industry analyst with TrueCar Inc.
The automaker’s U.S. introductions this year include redesigned versions of the Chevrolet Silverado pickup and Corvette sports car. The Silverado and its GMC sibling, the Sierra, comprised 22 percent of GM’s U.S. sales last year. The pickups are among the company’s most profitable vehicles.
“We’re going to find out how well-oiled the North American machine is in the first half of this year as they run out of old product and prepare for new product,” Adam Jonas, an analyst with Morgan Stanley, said. “There’s no way it can be flawless. Nothing is flawless. But just how much can they control the chaos?”
GM ended 2012 with an inventory of 221,649 of the large pickups, which was 1,649 more trucks than the company had planned. The revamped trucks begin production in the second quarter and the company has said it plans 10 weeks of downtime among its three pickup plants to prepare for the change.
Competing with Toyota and Volkswagen AG (VOW) to be the top-selling automaker in the world, GM wants to increase its operating margins to reach VW’s level and rebound from an 88-year U.S. market-share low in 2012 by introducing about 20 new models.
Global deliveries rose 2.9 percent to 9.29 million cars and trucks while Toyota’s sales rose 23 percent to a record 9.75 million. GM had taken the global sales crown in 2011 as Toyota struggled with production problems following natural disasters in Asia.
GM expects modest U.S. market share growth this year, Akerson said in January. “Certainly that’s our hope and that’s our expectation,” he said.
GM also sees continued growth in China, the world’s largest car market, where the China Association of Automobile Manufacturers says the vehicle market may rise 7 percent this year to 20.65 million. Sales of GM and its joint-venture vehicles rose 11 percent to 2.84 million in 2012.
Adjusted Ebit for GM’s international operations, which include China, Russia and India, rose 27 percent to $473 million in the fourth quarter on revenue of $7.9 billion, giving the region a 0.5 percent operating margin. Adjusted Ebit rose to $2.19 billion for the year from $1.9 billion a year earlier.
Brazil’s operating results are included in GM’s South America division, which saw fourth-quarter adjusted-Ebit total $99 million from a loss of $225 million a year earlier. For the year, the South America unit’s adjusted-Ebit was $271 million from a loss of $122 million.
GM introduced seven new vehicles in Brazil as part of an effort to update its offerings and return the region to profitability. Brazil accounted for 60 percent of GM’s vehicle sales in South America during the first three quarters of last year.
In the fourth quarter, the automaker spent $5.5 billion to acquire 40 percent of the U.S. government’s stake in the company, helping facilitate the Treasury’s efforts to eventually exit GM. The government said in December that it would take 12 to 15 months to sell the remaining 22 percent stake.
At the end of the year, GM had $37.2 billion in automotive liquidity compared with $37 billion a year earlier.
GM’s U.S. pension plans earned 11.6 percent last year. The plans were 84 percent funded at the end of the year, or $13.1 billion underfunded, which the automaker said was a slight improvement from a year earlier. GM said it doesn’t expect any contributions to be required for at least five years and doesn’t plan to make any this year.
The company’s improved financial footing led the company to eliminate the valuation allowance against deferred tax benefits. That produced a one-time gain of $34.9 billion, which was almost entirely offset by a $26.2 billion elimination of goodwill, the $5.2 billion write-down to European assets, a one-time cost of $2.2 billion for a pension deal and other items.
“It’s a very positive thing,” said Robert Willens, a corporate tax specialist based in New York, said of the valuation reduction. “It’s more positive for the statement that the company is making that it has great confidence in its ability to produce taxable income sufficient to realize these deferred tax assets.”
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