General Motors Shares Soar Despite Weak Performance in Europe

on Nov 1, 2012

On Wednesday 31 October shares in General Motors (NYSE:GM) jumped by the highest ever margin since the company’s initial public offering in November 2010. The stock price gained 9.5 percent and ended up at $25.50 when the New York stock exchange closed. The rise can be attributed to the strong quarterly results released but even more so to GM’s pledge to break even by the middle of the decade in Europe, the region where it has lost $17.3 billion (£10.7 billion) since 1999.

**Q3 Results**
Yesterday General Motors announced third quarter net income attributable to common shareholders of $1.5 billion (£928 million), or $0.89 (£0.55) per fully diluted share, compared with net income of $1.7 billion (£1.05 billion) in the previous year.
“GM had a solid quarter because customers around the world love our new vehicles and we’re also seeing green shoots take hold on tough issues like complexity reduction, pensions and Europe,” said Chairman and CEO Dan Akerson in the press release covering the company’s results. “We are going to keep playing offense with growth products like the Chevrolet Onix, Opel Mokka and Cadillac ATS and continue to systematically address business risks.”

The results by segment show that adjusted earnings before income and tax (EBIT) year-on-year fell in North America by 18.1 percent to $1.8 billion (£1.11 billion). In Europe the company registered a $500 million (£310 million) loss, higher than last year’s third quarter $300 million (185.6 million). GM’s International Operations reported $700 million (£432 million) EBIT, while in South America they amounted to $100 million (£61.85 million).

**Business Revamp in Europe**
!m[The Automaker Set on Course With Wide Restructuring of Its European Arm](/uploads/story/698/thumbs/pic1_inline.png)General Motors has promised to work hard in order to achieve satisfactory performance and eventually break even in Europe.
In its restructuring programme, the company will be reducing its European employment count by 2,600, 200 of which from the UK, but assured that most cuts will come through voluntary redundancies and early retirement.

“We’re managing to a cost number, not just taking out heads for the sake of taking out heads because it’s some statistic people put out,” said Steve Girsky, GM’s vice chairman in charge of turning around its European operations “We’re not in the habit of announcing things and doing them. We’d rather do them and then announce them.”

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According to Mr Girsky the company has been carrying out stealth job reductions throughout the year and has greatly reduced factory capacity by closing a plant in Belgium two years ago and consolidating the production of the Opel Astra model from three to two plants. About $300 million (£186 million) in fixed costs were slashed in Europe this year.
GM is also trying to polish its reputation and boost the image and the price tag on its Opel brand, which took a serious hit when the company went bankrupt in 2009 and has suffered from icy relations with the European unions. “Our brand image has deteriorated over the last several years,” Girsky commented. “The bankruptcy was part of it. The poor relations with the works council was another part of it. We are working very hard. We know we’re behind.”
The automaker expects European auto industry sales next year to fall between 4 and 5 percent compared with 2012 amid the continuing Eurozone debt crisis. The company intends to stick to its Opel restructuring plan since a European recovery in the near future is not a likely scenario.

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