It didn't look that bad at first: General Motors (NYSE: GM) reported $1.7 billion in net profits for the third quarter on Wednesday, or $1.03 a share, on revenues of $36.7 billion.

That was down from a great year-ago quarter, though it handily beat analysts' estimates of $0.94 a share, reflecting continued solid execution in North America and China. "But solid isn't good enough, even in a tough global economy," CEO Dan Akerson said in a statement that raised eyebrows around the world, as shares dropped 10% in early trading.

That's an interesting flavor of spin for a CEO to apply to an earnings report that solidly beat estimates under tough economic conditions. But a closer look shows that he's right.

The good news is good, but ...
Even though GM has now had seven consecutive profitable quarters, is poised to reclaim its position as the world's largest automaker by sales volume, and has more than $30 million in the bank, this is still a turnaround story in progress. It's important to remember that. Unlike Ford (NYSE: F), which is on the verge of completing its product revival and poised to start realizing the benefits of its new structure and approach, GM still has a lot of work to do.

The good news is that some parts of GM are functioning very well indeed, particularly its two most important markets:

  • North America, long GM's money-losing quagmire, is now solidly profitable and the financial driver of GM's global empire. GM made $2.2 billion in North America on revenues of $21.9 billion, both up from year-ago numbers, as sales and market share both rose while rivals Toyota (NYSE: TM) and Honda (NYSE: HMC) struggled to restore production. The only downside is that "product mix" was less favorable year over year, but even that's arguably good news: The hot-selling Chevy Cruze compact was just being introduced a year ago, and its success has somewhat offset the impact of strong sales of GM's trucks, which have much higher margins.
  • China continues to be a big success for GM, as revenue from its joint ventures added about $400 million to GM's bottom line in the quarter. GM's industry-leading market share in China is up to 14.1%, versus 13.6% a year ago. GM's China margins suffered a bit because of costs related to the launch of the new low-cost Baojun brand and incentives on light commercial vehicles, CFO Dan Ammann said in a conference call for analysts on Wednesday, and the company continues to invest in additional production facilities and product development in the region.

... the bad news is not insignificant.
But there's also bad news, signs that work remains to be done, as Akerson and Ammann repeatedly acknowledged on Wednesday:

  • Europe. GM lost about $300 million in the region after eking out a tiny profit last quarter. Worse, the company has abandoned its long-held goal for its European division of breaking even in 2011, because of declining macroeconomic conditions in the region. GM Europe has decent, competitive products, but the company needs to lower its breakeven point in the region to ensure that it is sustainably profitable even during tough economic times, just as it has already done in North America. That won't be a quick fix: GM has already done significant restructuring in the region, where it has lost more than $13 billion since 1999. Hoping to jump-start improvements, Akerson replaced GM's longtime Europe chief with rising star Karl Stracke earlier this week. Stracke will have his hands full.
  • South America, where GM just broke even after a $200 million profit in the year-ago period. Brazil is the key market here, and inflationary pressures and a dated product line have squeezed GM's margins and cost it market share in the country. Once again, executives said, this is an area where GM needs to lower its breakeven point to ensure sustainability, and steps like headcount reductions are already being taken. GM just launched the Cruze in Brazil and is launching 7 more new products there over the next year. Those launches will add to costs in the near term, but the updated product line should help GM recover lost sales ground.

The news about Europe was the likely catalyst for a wave of selling that hammered GM's stock early on Wednesday, with shares briefly falling more than 10% before recovering somewhat. While Europe's drag on GM's bottom line isn't significant in dollar terms, the continued problems represent a disappointment for investors who thought after last quarter that GM's long-troubled operations in the region might finally be coming under control.

The upshot
GM expects the fourth quarter to look a lot like the fourth quarter of last year, when profits were down because of increased costs related to product development and new-vehicle launches. Ammann explained on Wednesday that GM expects to see roughly two-thirds of its full-year profits in the second and third quarters, with the remainder split more toward the first quarter. Put another way, the fourth quarter will be weak relative to other quarters, because of a number of seasonal factors, but that's normal and expected.

Ammann also noted that the company's estimate of its pension liability had fallen to $8.7 billion from $18 billion a year ago. Although he declined to give specifics, saying that more details would be forthcoming next quarter, he did say that the "derisking" of the company's pension liability was going well and that no major cash contributions were expected in the near term. That's reassuring news on a front that had worried some investors, though more details will be helpful.

Long story short, GM's not doing badly, but it has opportunities to improve that are within its control, as well as macro challenges that need to be faced. Continued strength in North America and China should give GM managers the time and resources needed to make progress elsewhere, but the next few quarters will be interesting to watch.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.