On Thursday, General Motors (NYSE:GM) reported generally in-line fourth quarter results. As expected, Europe remained a significant drag on profitability. Since going public again in late 2010, GM has generated nearly all of its profit in the North American region. However, GM's North American market share has slipped during that time, raising doubts about the sustainability of this business. For Q4, adjusted earnings before interest and taxes in North America was down slightly over the prior year's period. Moreover, North American market share dropped from 17.5% to 16.6%.
GM hopes to bounce back in North America by introducing about 20 new models over the next two years. However, while new products should provide GM a nice boost, the company will face headwinds from two directions: a new F-150 based on the "Atlas" concept from Detroit rival Ford (NYSE:F), and stronger pricing competition from Japanese automakers, enabled by the weak yen.
K2XX: Will it be enough?
In the next year, GM is refreshing its pickup trucks with models based on the new K2XX architecture. As I discussed earlier this month, the transition could be pretty bumpy, because GM entered the year with very high inventory of last-generation pickup trucks. However, GM bulls believe that this overdue truck overhaul will increase the competitiveness of GM's truck lineup, improving profitability over the next few years.
The problem is that market-leader Ford is due to introduce its own updated truck, based on the Atlas concept, next year. To improve fuel economy, Ford is planning to cut 750 pounds compared with the current F-150 pickup, while also featuring an active grille and stop-start technology. Ford's goal is to reduce fuel consumption by 20%. If Ford delivers on this goal, GM could find that it is still behind the technology curve in the pickup segment. Pickup owners tend to be very loyal to their favorite brands, and so GM needs a clear advantage to make significant market share gains in the segment.
Competition ramps up again
GM's 2012 North American profit declined somewhat compared to 2011 despite a double-digit increase in the market . The main cause was a strong rebound by Japanese auto giants Toyota (NYSE:TM), Honda (NYSE:HMC), and Nissan from the 2011 tsunami, which led to massive supply disruptions. During 2012, Japanese automakers offered more incentives in order to regain lost market share .
In 2013, GM could face even tougher price competition from its Japanese competitors. The yen has fallen by more than 15% against the dollar over the past year. That reduces costs for the Japanese automakers for two reasons: Some of the cars they sell in the U.S. are built in Japan, and many components for the cars they build in the U.S. are made in Japan. With many costs denominated in the now-cheaper yen, Japanese automakers are saving a lot of money. Toyota, Honda, Nissan, and others may pass some of that savings along to consumers to maintain their market-share momentum in 2013.