As General Motors begins to see results of its turn-around efforts in Europe, its South American operations are trending in the opposite direction, reporting a $100 million loss in the first quarter of 2016. Sales fell 25.8 percent to 133,243 units in the first quarter.
Historically, South America has been difficult to manage due to the unstable Brazilian market, which is headed for its worst economic downturn in 25 years. But even in the adverse conditions, GM still managed to curb its losses in the region: the $100 million loss is a notable improvement over the $200 million GM South America lost in the year-ago quarter. Helping to minimize the losses are several restructuring efforts that include cutting labor costs and production output in the region.
“Macroeconomic conditions remain challenging with no near-term recovery in sight,” GM CFO Chuck Stevens said about South America during the Q1 2016 earnings call with analysts. “The results of our restructuring action over the past year contributed to improved results this quarter versus year-ago.”
Stevens says that forecasting the company’s performance in South America is difficult due to the economic instability in Brazil. GM’s planned $1.62 billion investment in its Brazilian operations is currently on track, but GM President Dan Ammann said in February that the plan would be reconsidered if conditions don’t improve.
“We’ll continue to take action to mitigate the negative headwinds that are impacting the industry and GM’s results in the region,” said Stevens. “We are well-positioned to take advantage of the economic recovery when it materializes.”
Brazil is South America’s largest automotive market, and General Motors operates five manufacturing facilities in the country, which was once ranked among the world’s top five in automotive sales volume. Though GM remains bullish on Brazil’s future potential, executives have stated that it needs to adopt business-friendly fiscal policies.
Making matters more challenging is the country’s current economic state: Brazil’s economy is in an economic free fall as a result of political unrest and numerous corruption scandals. Adding to the drama is potential impeachment of Brazil’s president, Dilma Rousseff, on charges of breaking budgetary laws.