General Motors will announce its Q1 2013 earnings On May 2nd, and the results might have a positive effect on the automaker’s stock price — which has experienced a slight decrease in value over the last two months. At the forefront of tomorrow’s earnings report will be the gravity of GM’s losses in Europe, the profitability of North American operations, and performance in China.
Increased Profits In North America
GM’s North American division will likely continue to be the automaker’s star performer as it earns the company’s largest profit. GM North America has the luxury of selling the most high-margin vehicles — pickup trucks and Cadillacs — than any of GM’s other geographic divisions. Fortuitously, both the trucks and the Wreath and Crest brand have enjoyed strong demand in the first quarter — boding well for the division’s profitability.
The expected growth in profitability for GMNA will likely come as a huge relief to The General, since the division’s margins have fallen to 5.8 percent in Q4 2012 as GM offered massive discounts to clear out inventory. Full-year 2012 margins for GMNA were 7.5 percent, lower than those of cross-town rival Ford and its 11 percent margin.
Through March, sales of the Chevy Silverado and GMC Sierra light-duty trucks were up nearly 16 percent — outperforming the broader market in sales and incentives as all-new 2014 models arrive this Spring. Given the launch of the all-new 2014 Silverado and Sierra, truck sales will likely remain strong throughout 2013.
In addition, Cadillac is reaping the benefits of its ongoing revitalization, as sales grew 37 percent for the first three months of 2013. The luxury brand launched the ATS compact sport-luxury sedan and the XTS full-size luxury sedan in 2012, and will launch the all-new 2014 CTS later this year.
Overall, General Motors’ sales in the United States — the biggest segment of GMNA — grew 9.3 percent during the first three months of 2013. Higher margins at home will prove to be crucial in offsetting losses experienced in Europe for the foreseeable future.
Likely to be the focal point of the earnings call is GM’s European division, which is in the midst of being restructured. In 2012, GM Europe lost $1.8 billion, and losses in 2013 could possibly top $2 billion as the General works to break even by mid-decade. However, deteriorating market and economic conditions in Europe offer little reassurance that things will go according to plan.
On an annual basis, GM’s sales in the region have declined roughly 10 percent through March, but market share has remained stable.
One of the ways in which GM is looking to restructure its European operations is by curbing overcapacity. The automaker plans to close at least the Bochum plant in Germany, but governments and labor unions continue to be major impediments to shuttering facilities and laying off workers.
On a more positive note, General Motors is notoriously the market leader in China, having a market share of 14.7 percent in the world’s biggest automotive market. Through March of this year, GM sold 9.6 percent more vehicles than it did during the same time period in 2012. GM did, however, see a slight dip in market share in a market that’s growing at a 13 percent clip through March.
Notably, GM operates in China with several joint ventures, and splits its income with those Chinese entities — making the operation less profitable than it could be otherwise. That reality is further amplified by the mix of vehicles GM sells the most in China, which mostly consist of smaller, more fuel efficient cars that are less profitable than high-margin Cadillacs or trucks (sold in North America). As such, net income per vehicle sold will likely remain flat year-over-year.
The General is, however, planning on drastically increasing the sales volume of Cadillac vehicles in China over the next three years, mostly by building the luxury cars in China rather than importing them from the United States.
Other topics that might be discussed is the U.S. Treasury’s ongoing divestiture of GM and the performance of GM’s captive finance arm, GM Financial.