Final Inspection

GM’s Third-Quarter Results Confirm No Gain Without Pain

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North America is raking in big profits on record-wide margins, but it did not come without years of costly, gut-wrenching restructuring. Now other corners of GM’s universe are finding earning a buck these days can be painfully surgical in nature.

No pain, no gain. That’s a big takeaway from General Motors’ third-quarter earnings report yesterday, an otherwise strong $698 million result that beat expectations despite $900 million in charges.

North America would be a case in point. The region is raking in big profits on record-wide margins, but it did not come without years of costly, gut-wrenching restructuring. Now other corners of GM’s universe are finding earning a buck these days can be painfully surgical in nature.

In Europe, where economic woes put a screeching halt to profitability many quarters ago, GM will start booking “significant” charges over the next year related to the closing of its Bochum, Germany, assembly and transmission plant. The charges are hardly unexpected but confirm how costly every step in GM’s restructuring there will continue to be.

Looking further out, GM executives aren’t exactly confident things will get much better after mid-decade, when the automaker expects its operations there to break even.

Dan Ammann recently told WardsAuto he sees no dynamic where a rebounding economy could combine with pent-up demand to spur a sales comeback in Europe, as the U.S. has witnessed.

“Is that a possibility? Yes,” he said. “Do I see that as the mainstream scenario? No.”

Meanwhile, GM’s alliance with PSA Peugeot Citroen appears to have sprung a leak. The automakers touted billions of euros in savings when they announced the purchasing and product-development tie-up last year.

But struggling PSA needs capital to execute its own turnaround and an anticipated investment by Chinese automaker Dongfeng and the French government no longer seems imminent, with Dongfeng on Monday expressing concerns about PSA’s business vitality.

GM cannot be enthusiastic over a competitor in its coveted Chinese market taking a stake in PSA, either. GM basically shut down Saab by objecting to its Chinese suitor, and a recent Reuters report links GM’s apparent cooling over the PSA alliance to Dongfeng’s involvement, which has in turn created friction between GM and key China partner SAIC. SAIC and Dongfeng are direct rivals.

“It is fair to say we are still working (together) with regard to specific platforms that we see potential benefit for both companies,” GM Chairman and CEO Dan Akerson said in yesterday’s conference call with Wall Street analysts. “We are watching the situation carefully, their apparent need to raise additional capital and how that might fit with our plan.”

The push to make Chevrolet a bigger player in Europe may have hit a pothole, too, with news emerging that GM will move Russia under European management from its International Operations. That gives Opel, the primary loss maker for GM in Europe, a shot at rebounding more quickly, but it might come at the expense of growth aspirations for Chevrolet.

GM saw positive results from South America in the quarter, where revenue and unit-sales continued to increase as the automaker launched new products there to stem a string of market-share losses last year.

Yet, GM suggests the region may continue to produce currency-, regulatory- and inflationary-related headaches.

Brazil, despite all of its promise as the No.4 market worldwide, has returned to the economic unevenness of its past amid new social and political upheaval. In Argentina, the president has taken ill ahead of congressional elections, and relations between Venezuela and the U.S. went rocky in September over allegations American diplomats were trying to sabotage the local government’s work to revive its economy.

Akerson lamented to analysts that operating reviews of South America often require a 30-minute update on the various political situations. “It is a more challenging political/economic area than most areas of the world. And we do spend more time trying to understand that,” he said.

GM’s once-vibrant International Operations are not immune, either. The unit has been beset by a scandal in India over how the automaker reported emissions levels, legal wrangling with its South Korea workforce over wages, and a murky future in Australia where its Holden production operations are in jeopardy.

GM recently installed former Volkswagen and Volvo executive Stafan Jacoby, an international expert with turnaround credentials, to lead the 100-country unit. Jacoby currently is conducting a strategic review of GMIO and the automaker says many decisions there are forthcoming.

So while GM may indeed be on the path to long-term viability, there’s also plenty of proof it’s not out of the thorny woods yet.

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WardsAuto editors share insights and observations on the global auto industry.

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David E. Zoia

As Editorial Director, I oversee much of what goes into WardsAuto.com, enjoying a ringside seat that lets me observe up close just about every facet of the industry worldwide. I have covered the...

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James Amend is an associate editor at WardsAuto.com, covering day-to-day business and product news at General Motors. He also leads coverage of regulatory and environmental issues, as well as the...
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