General Motors Company (NYSE: GM) today said Q2 income was $1.5 billion, or $0.90 per share of common on revenue $37.6 billion. The frankly disappointing results compared to Q2 2011 when GM’s net profits on common stock was $2.5 billion, or $1.54 per share. The latest numbers also paralleled a drop in Q1 when earnings decreased to $1 billion, down from $3.2 billion in Q1 2011. GM’s global market share dropped to 11.6%, down from 12.3% in Q1 of 2011.
The U.S.’s largest automaker said the decrease in earnings was due “almost entirely” to the strengthening of the U.S. dollar versus other major currencies, an implicit criticism of the Obama Administration policy of printing money to stimulate a weak economy. From a manufacturing policy point of view, GM is showing just how vulnerable the company is to its increasing dependence on overseas operations, the result of moving component and final assembly operations offshore even for high volume products sold in North America.
GM earnings before interest and tax (so called EBIT) were $2.1 billion, compared with $3.0 billion in the second quarter of 2011. Results in North America and Asia were profitable, but almost all of GM’s self-proposed key performance indicators were unfavorable compared to a year ago. Only GM Financial improved results quarter over quarter. This raises doubts about whether the reorganized company – given a second chance by U.S. and Canadian taxpayers who financed its reorganization – is really reformed and capable of growing. Simply put, revenue, earnings, profits and cash on hand all decreased.
“Despite the challenging environment, GM has now achieved 10 consecutive quarters of profitability, which is a milestone the company has not achieved in more than a decade,” said GM chairman and CEO Dan Akerson. The CEO on a conference call also alluded to ongoing management changes and reorganizations by saying “we will not hesitate to act to make the business stronger” by replacing people who don’t deliver results, This was said with no apparent awareness that U.S. taxpayers who still hold a large stake in the company could apply this dictum to him. For the moment Akerson’s job is safe because replacing him in an election year would raise questions about the Obama Administration, which itself is facing the prospect of joining unemployment lines.
The U.S. Treasury owns 32% of GM common stock, acquired as part of the Obama Administration’s unpopular $50 billion taxpayer-funded bailout. Common sense would now say taxpayers should hold the GM stock in the hope that, eventually, GM’s financial performance and its stock price will improve as the economy slowly recovers. In early trading GM stock was selling for under $20, well down from the $33 price of GM’s 2010 initial public offering in November of 2010. Small investors subsequently bid up GM stock – which pays no dividend – to $39 a share before reality of the company’s ongoing problems took hold. In order for taxpayers to recoup their investment, GM stock would have to trade above $50 a share in a market strong enough for the government to sell its stake.
Looking at the individual operations:
- GM North America (GMNA) reported EBIT-adjusted of $2.0 billion, compared with $2.2 billion in the second quarter of 2011, and that was because of “deferred spending.’
- GM Europe (GME) reported an EBIT-adjusted loss of $0.4 billion, compared with EBIT-adjusted of $0.1 billion in second quarter of 2011.
- GM International Operations (GMIO) reported EBIT-adjusted of $0.6 billion, equal to the second quarter of 2011.
- GM South America (GMSA) reported breakeven results on an EBIT-adjusted basis, compared with EBIT-adjusted of $0.1 billion in the second quarter of 2011. The second quarter 2012 results include $0.1 billion in restructuring expenses.
- GM Financial earnings before tax was $0.2 billion for the quarter, compared with $0.1 billion a year ago.
- In the Corporate segment, GM reported EBIT-adjusted of $(0.2) billion, of which $(0.1) billion was attributable to a non-cash foreign exchange loss.