GM’s profit sank 41 percent in the second quarter of 2012 as the automaker earned $1.5 billion, down from $2.5 billion achieved during the same time period a year ago. Meanwhile, The General’s revenue dropped 4 percent during the quarter to $37.6 billion. The results show that the company is seeing a significantly-reduced return on its operations, in effect earning less from the same amount of work. For its part, GM blames the profitability drop on the strengthening of the U.S. dollar against other currencies. But was that truly the biggest reason for the drop? “Our results in North America, our international operations and at GM Financial were solid but we clearly have more work to do to offset the head winds we face, especially in regions like Europe and South America,” said Dan Akerson, GM’s chief executive.
No Surprise With European Woes
Speaking of headwinds, automotive sales in Europe have plunged in debt-ridden nations such as Greece, Portugal, and Italy, and GM lost $361 million in the region during the second quarter. A year earlier, the automaker earned a $102 million profit, a period many thought was the end of The General’s misfortunes in the region. In addition, GM’s South American unit swung to a loss of $19 million from a profit of $57 million a year earlier.
North America Still Most Profitable
The General’s North American operations are by far its most profitable, as the automaker’s operating profit came in at just under $2 billion. But signs of a slowdown are showing, as sales dropped in July and overall profit dropped by 13 percent during the second quarter. Moreover, GM sales grew less than 3 percent in the first seven months of 2012 to 1.5 million vehicles while the overall industry grew 14 percent.
Whether this is cause for concern is yet to be determined; on the one hand, GM is making the best products in its history (but then, isn’t everyone?) — thereby leading us to assume that sales will naturally increase given the increased competitive nature of its new series of vehicles. On the other hand, Japanese automakers are recovering from last year’s natural disasters and are earning back their previously-held market shares.
Asia Down, But Still Profitable
GM earned $557 million in Asia, down slightly from $573 million a year earlier. No cause for concern here, albeit a clearer brand strategy may be in order, as GM not only offers Chevy but also Opel and Buick — in the same market. And The General is about to launch Cadillac out of a rocket in China.
The Bottom Line
Ultimately, a profit is better than no profit at all — and GM has had 10 consecutive profitable quarters — a feat that hasn’t taken place in more than a decade. But that’s not saying much, is it?
Perhaps more important is Akerson’s mention of what he called the “leadership” issue at the company. The firing/resignation of Joel Ewanick and Dave Lyon, coupled with the withdrawal of Karl-Friedrick Stracke from Opel may what the chief executive is referring to.
In Akerson’s own words: “This was a solidly profitable quarter for General Motors, particularly in North America and Asia,” he said, but acknowledged that “most of our key metrics were unfavorable compared with a year ago. That’s not acceptable with this leadership team.” He promised changes that would improve the results.
The GM Authority Take
Get to work, ladies and gents. Oh, and what is the real deal with Opel? Will the real Opel please stand up?Google+