Global struggles hurt GM's profit

The automaker nails its seventh straight quarterly gain, but problems overseas are affecting the bottom line.

By Kim Peterson Nov 9, 2011 12:47PM

Updated: 5:26 p.m. ET

 

Europe is dragging General Motors (GM) down.

The automaker is doing great business in North America, but turmoil in Europe is cutting into overall profit. GM lost $292 million in Europe alone in the third quarter, and the company hasn't made an annual profit there in at least 10 years.

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GM had expected to break even in Europe this year before interest, taxes and other charges. Turns out that goal was too ambitious. Losses there are so high that the automaker now says it won't make that target.

GM shares fell 10.9% Wednesday to $22.31 after the company reported that its quarterly profit fell to $1.73 billion, or $1.03 a share, from $1.96 billion, or $1.20 a share, in the year-ago period. That's a 12% drop -- but still higher than the 96 cents a share analysts were expecting.

The company's operating profit, a closely watched performance gauge, declined to $2.2 billion from $2.3 billion. Revenue rose 7.6% to $36.7 billion, slightly higher than the $35.9 billion Wall Street expected.

Still, GM is having a fantastic year. In fact, 2011 is on pace to be the company's most profitable year in more than a decade, The Wall Street Journal notes. So far, the company has made $7.4 billion this year, far surpassing the $4.7 billion it made in 2010. And global market share rose to 12% from 11.4% a year earlier.

The problems lie overseas. Check out GM's global profit breakdown. The company made $2.2 billion in North America in the quarter -- a great number. It lost $292 million in Europe and $44 million in South America. It made only $365 million (down from $516 million a year earlier) in the red-hot markets of China, India and Russia. Currency woes didn't help in the quarter.

Among the biggest drags on the stock right now are concerns about GM's pensions, Bloomberg reported. Worldwide, the company's pensions may be underfunded by about $27 billion at the end of this year, one Credit Suisse analyst wrote in a note to clients.

In the United States, pensions were underfunded by $8.7 billion at the end of September, Bloomberg added.

There is plenty more work to be done. GM needs to raise its margin. Its current 6% margin is a full percentage point behind those of its closest rivals, The Associated Press reported. The company also needs to keep momentum now that Toyota (TM) and other Japanese carmakers are recovering from the March earthquake and tsunami. It needs to reassure investors about its pension levels and lift its stock price.

Finally, it needs to weather the ongoing economic turmoil in Europe and the rest of the world.
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