What the heck is going on at General Motors (NYSE: GM) now?
First, the well-regarded head of its European operation, Karl-Friedrich Strasse, was abruptly dismissed – with some rumors suggesting that he was fired on the spur of the moment by CEO Dan Akerson.
Then, just last week, the newly promoted head of design for troubled German subsidiary Opel, Dave Lyon, abruptly left the company before he even showed up at his new office.
Now, on this past Sunday -- yes, Sunday -- GM's highly visible global marketing chief, Joel Ewanick, was abruptly (there's that word again) ousted.
What's going on? And more to the point for investors, what does this all this turmoil suggest about GM's upcoming second-quarter earnings report?
The latest drama in a season of turmoil for GM
What it suggests, first and foremost, is that Akerson (and his right-hand man, Vice Chairman Steve Girsky) is getting impatient with the slow pace of GM's revival. Lyon's departure remains something of a mystery, but Strasse's removal was clearly an expression of frustration with the slow pace of change at money-bleeding Opel, and Ewanick was the marketing chief at a time when GM is losing ground at home and in Europe.
The official word is that Ewanick was asked to resign because he didn't properly vet the financial details of a major new European soccer sponsorship deal. That may be true, and given GM's $4.5 billion-with-a-b advertising budget and Akerson's intense focus on financial discipline, a slip in accountability is a big deal -- but it may also be true that this is the kind of mistake that well-regarded executives manage to survive, and Ewanick didn't.
Ewanick had been given much credit here and elsewhere for recent moves to consolidate GM's global marketing spending, moves that are expected to save GM $2 billion over the next five years. Akerson himself made a point of praising Ewanick's efforts and approach in an interview just a few weeks ago.
But Ewanick had also rubbed lots of people the wrong way, inside and outside of GM, and made some moves that seemed strange for the world's largest automaker. Perhaps more to the point, Ewanick's efforts weren't generating results in the marketplace: GM's U.S. market share fell to 18.1% in the first half of 2012, down from almost 20% a year earlier.
There are good reasons to say that drop wasn't necessarily Ewanick's fault: GM is still waiting on a bunch of new products, and Toyota (NYSE: TM) and Honda (NYSE: HMC) are on a major upswing after a brutal 2011. But GM is a company that has desperately needed more accountability. With a CEO who is grimly determined to foster that accountability throughout the organization, and who isn't afraid to make big abrupt moves, it's possible that Ewanick's removal was at least partly meant as an example.
Next up: An interesting earnings call
GM reports second-quarter earnings this Thursday, and all of this executive turmoil will provide a tense backdrop to the call. What to expect? It seems obvious that a sizable loss in Europe is in the cards, given rival Ford's (NYSE: F) European loss swelled to $404 million in the second quarter, and the Blue Oval's operation is in some ways in better shape than GM's. After a $256 million loss in the first quarter, it won't surprise me if GM's second-quarter loss exceeds Ford's.
Profits in North America should be reasonably strong, though perhaps not quite up to the $2.2 million that GM booked in the year-ago period, back when it was making hay while Toyota and Honda struggled. While GM's market share has slipped this year, its overall sales have been up slightly, and strong sales of higher-margin pickups will help, though margins will be offset somewhat by GM's still-too-high incentives.
And elsewhere? The Chinese market is slowing, but GM is still reporting sales growth, so results should be consistent with recent quarters. Good results in Russia will help. And after some struggles last year, GM South America seems set to build on a good previous quarter.
Drama seems set to continue
Aside from the obvious, here's what I'll be listening for in the call with Akerson and CFO Dan Ammann: More details on the plan to overhaul Opel, updates on GM's efforts to rein in its ginormous pension liability, and any updates on GM's long-term product-overhaul plan.
But here's what I don't expect: I don't expect Ewanick's departure to be the end of the turmoil that has gripped GM in recent months. It's clear that Akerson is not happy with the pace of progress at the world's largest (for the moment, at least) automaker, and while that's refreshing change from GM's we're-all-hunky-dory past, it's likely to make for a bumpy ride for a while -- not just for GM employees, but for its shareholders as well.
GM's stock is currently hovering near its post-bankruptcy low. But it could have significant upside in coming months, as new products hit showrooms and improvements continue around the world. However, investors need to stay attuned to fluctuating demand and the ability of automakers, like GM and Ford, to respond in unison. For starters, one of our top equity analysts has compiled a premium research report with in-depth analysis on Ford's competitive edge. To find out what could propel Ford down the road, get instant access to this premium report now.
