today confirms deep losses from its European operations, a blemish on an otherwise eye-popping $7.6 billion profit in 2011, and promises “systemic changes” to return the overseas unit to profitability.
“This is not a 1-dimensional problem of capacity and nothing else,” GM Chief Financial Officer Dan Amman says in a conference call this morning to discuss the auto maker’s 2011 financial results.
GM Europe reports a fourth-quarter pre-tax loss of $600 million, same as 2010. Full-year results show a loss of $700 million, or $1.3 billion better than year-ago. Quarterly revenue in the region fell 13% to $6.3 billion from $6.9 billion in like-2010, while market share slipped to 8.6% from 9.0%.
To stem the losses, analysts want to see European plant closings and workforce cutbacks on top of the capacity reductions the auto maker made during the unit’s restructuring in 2011 and 2010. Due to a badly deteriorated economic situation in the region, those moves did not stabilize operations as expected.
Amman does not provide details of the auto maker’s newest restructuring plan for the region. Those are expected within the next eight weeks. But he does say the approach will address every corner of GM’s European business, such as ways to improve its sales mix, as well as the quality of sales through measures such as cutbacks in unprofitable segments in some countries.
GM also sees ways to combine back-office operations between the German Opel and U.K. Vauxhall brands and its global Chevrolet brand now growing in the region. Engineering efficiency opportunities also exist, Amman says.
“I don’t want anyone to have the perception this is sort of a 1-dimensional manufacturing cost or capacity-utilization problem,” he says. “Getting to profitability is going to require progress on all fronts. We’re working very aggressively.”
Over the past several weeks, GM has shaken up Opel’s supervisory board, seating Amman, as well as GM Vice Chairman Steve Girsky, International Operations chief Tim Lee and global product czar Mary Barra. Changes also have swept lower-management ranks.
“We’re bringing a lot of change to the business and a lot of urgency,” Amman says.
GM Chairman and CEO Dan Akerson compares the situation in Europe to that of the U.S. in 2009, when a recession forced all stakeholders to make sober assessments of the situation that led to plant closings. Until now, such actions in Europe were seen as too difficult given its strong unions and provincial governments.
“There is a general recognition by all the constituencies that the situation in Europe today is not a whole lot different than it was in the United States three years ago,” he says. “There is a constructive engagement, and everybody around the table understands there has been a material change in the outlook for the European economy generally.
“We have to match capacity with demand, and demand has been falling,” Akerson says. “But we’re looking at everything to achieve a better breakeven point and scale.”
GM nearly sold Opel to a consortium of investors led by global parts-supplieras part of the auto maker’s 2009 bankruptcy. The deal was scuttled at the last minute because the two auto makers were so deeply integrated.
GM also promises more cost-cutting in South America, where fourth-quarter income swung to a loss of $200 million from a profit of $200 million year-ago. Revenue fell 6.7% to $4.2 billion from $4.5 billion and market share dwindled to 18.6% from 19.6%.
The auto maker’s product cadence in the region has trailed key competitors. However, it launched two important new products late last year and will introduce seven more models this year. It also promises improved year-over-year profitability in the region for 2012.
The bright spot for GM comes from its restructured North American operations, where fourth-quarter profits soared to $1.5 billion from $800 million year-ago. Revenue jumped 5.0% to $23.1 billion from $22 billion.
GM’s share of its home market fell to 17.5% from 18.5%. The auto maker blames the loss on planned reductions in the less-profitable fleet market and aggressive incentives by competitors in the luxury segment that it chose not to match.
GMIO, which includes markets such as China, India and Russia, reports fourth-quarter income of $400 million, up from $300 million in like-2010. Revenue improved 20.7% to $7.0 billion from $5.8 billion, while share grew to 9.5% from 8.7%.
GM finished 2011 with a global share of 11.9%, compared with 11.5% year-ago, on sales of more than 9 million units, up from 8.4 million in 2010. Worldwide production increased 6.3% to 9.3 million vehicles from 8.7 million. The auto maker’s liquidity position ends 2011 at $37.5 billion, compared with $33.5 billion 2010.
Looking ahead, GM reiterates its outlook for 2012 U.S. light-vehicle sales of between 13.5 million and 14.0 million units.
Management expects an unfavorable vehicle mix again in 2012 as high fuel prices drive buyers out of the more-profitable truck business to cars and cross/utility vehicles, but the auto maker welcomes the shift as it has been aligning its product portfolio to match.
Executives also anticipate higher sales volumes globally and favorable pricing given the number of new launches GM will conduct around the world.
In a piece of U.S. restructuring news earlier this week, GM ceased contributions to its pension plan for salaried workers and will move those employees to a less-expensive defined-contribution plan utilized for most corporate retirement plans today.
The auto maker also announced its 47,500 hourly workers in the U.S. would receive profit-sharing checks of up to $7,000 next month.
The checks represent the first annual payout under GM’s new performance-oriented bonuses, which take into account items such as revenue and quality. Under the old formula, GM last year paid out an average of $7,000 in profit-sharing checks.
Fourth Quarter 2011 Financial Results
2011 2010 %Change
Sales $37,990 $36,882 3.0
Net income $468 $510 -8.2
E/S $0.28 $0.31 -9.2
Unit sales* 2,236 2,171 3.0
Note: Dollar sales and net income stated in millions; unit sales in thousands. E/S is earnings per share. Net income excludes adjustments. *Wholesale deliveries.