GM is confident of Europe turnaround after losses doubled
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DETROIT (Bloomberg) -- General Motors Co. reiterated that it expects to break even in Europe by mid-decade after reporting losses in the region that more than doubled last year compared with 2011.
Pretax losses in Europe rose to $1.8 billion from $747 million in 2011, finishing on the steep end of the company's October forecast. It was the 13th straight year of GM losses in Europe and reflected the rapid deterioration of vehicle demand and economic conditions in the region. Since 1999, GM has lost $18 billion in the region.
Europe's economic malaise also led GM to take a $5.2 billion non-cash impairment on long-held assets and to write down the value of its investment in PSA/Peugeot-Citroen by more than half to about $200 million. While GM is optimistic about new Opel models, such as the Mokka crossover and the Adam minicar, GM shares fell 2.7 percent.
"We see a further deterioration in 2013 in Europe for the industry," Dan Ammann, GM chief financial officer, told Bloomberg TV on Thursday. "We feel quite good about the things that we do control, the way we go to market, the cost structure of the business. We're making a lot of changes."
While GM devalued its assets in Europe, the company reiterated its goal of breaking-even in the region by mid-decade. It said the move will mean the company will cut its depreciation and amortization expenses this year by $600 million, an accounting boost not factored into to its previously announced 2013 forecast that called for "slightly" better results than 2012.
Lower Europe loss in 2013
"If anything, investors should take some comfort in the fact that GM Europe will have $600 million of lower D&A expenses in '13, due to the impairment of intangible assets," said Brian Johnson, an analyst with Barclays. He said this would imply 2013 Europe losses of $1.1 billion to $1.2 billion.
Ammann said on a call with analysts that the automaker is "not betting on" an uptick in European auto demand later this year and he expects conditions to worsen industrywide in the region. He reiterated the company's earlier forecast that GM would trim operating losses slightly in Europe in 2013.
He said GM has no plans to provide additional funds to PSA/Peugeot-Citroen, its struggling partner in the region.
GM in October said it expected the full-year operating losses in Europe to total $1.5 billion to $1.8 billion, with "slightly better" results in 2013 and break-even reached by mid-decade.
Tougher competition
Troubles in Europe continue to provide distractions for CEO Dan Akerson, 64, who is trying to boost GM's profit margins, regain lost market share in the U.S., and increase China sales by 75 percent by 2015. The company faces a resurgent Toyota Motor Corp., which regained the title of world's best-selling automaker from GM last year.
European losses detracted from the automaker's third straight profitable year, driven by the U.S. and China. GM said that net income fell 33 percent last year to $6.19 billion from a record level in 2011.
"Competition remains a real threat for GM," Christian Mayes, an analyst with Edward Jones, said. "They are fighting back by revitalizing their product lines, but it remains to be seen if that will be enough to fend off competitors. Japanese automakers are benefiting from a weaker yen, and European automakers are starting to eye the stronger U.S. market to offset sluggish sales in their home market."
Fourth quarter results
GM posted a net profit of $892 million for the October-December period, nearly double the year-earlier figure. In Europe, fourth-quarter operating losses widened to $699 million from $562 million a year earlier. North American operating profits dropped 7 percent in the quarter to $1.40 billion. Full-year profits in the region fell 3 percent to $6.95 billion. GM's global fourth-quarter revenue grew 3 percent to $39.31 billion.
In North America, the drop in fourth-quarter operating profit came as higher costs and weaker pricing outweighed higher volumes and better product mix, including stronger sales of profitable full-sized pickups.
GM's international division -- which includes China, Russia and other emerging markets -- posted a 27 percent increase in fourth-quarter operating income to $473 million, as stronger volumes and pricing offset higher costs. For the year, operating profit there rose 15 percent to $2.19 billion.
South America saw the automaker's strongest profit gain in the quarter, swinging to a $99 million operating profit from a $225 million loss a year earlier. GM is launching a slate of new or redesigned vehicles in Brazil and other countries. For all of 2012, South America swung to an operating profit of $271 million from an operating loss of $122 million in 2011.
GM Financial's operating profit dropped 14 percent to $146 million in the fourth quarter, but rose 20 percent to $744 million in the full year.
New Europe boss
GM last month hired Karl-Thomas Neumann, a former Volksagen executive, to head its European operations, effective March 1. The automaker has announced plans to cut $500 million in annual costs over the next three years after eliminating $300 million in spending and 2,600 jobs by the end of 2012, mostly through early retirement and voluntary separations.
GM employs 40,000 staff in Europe, with 22,000 of those jobs in Germany. The automaker wants to reduce capacity in Europe by closing a German factory in Bochum as demand for cars in the region shrinks for a sixth straight year.
The company also seeks to improve results in the region through its alliance with PSA.
Mike Colias and Reuters contributed to this report
