General Motors (NYSE:GM) said Thursday that fourth-quarter profit fell 13% as restructuring costs in its overseas operations more than offset solid results in North America.
GM made $1.04 billion in the fourth quarter (before dividends), down from the $1.19 billion it earned in the last quarter of 2012. Excluding special items, most involving overseas restructuring, the automaker earned $0.67 a share. Wall Street analysts had expected earnings of $0.88.
So is this bad news for GM? Not really. Let's take a closer look.
A look under GM's financial hood
The best way to understand GM's financial results is to consider them the way GM does -- by business unit, starting with regional operations. As is customary, these earnings numbers don't include the effects of taxes.
GM earned $1.88 billion in its home market during the fourth quarter, up from $1.42 billion a year ago. For the full year, GM earned $7.5 billion in North America, up from $6.5 billion a year ago. That's a record. The story here is pretty simple: Strong new models and more discipline around incentives have led to more profit per vehicle sold, even as sales gains have lagged those of some competitors.
Europe has been a massive money pit for GM, which has lost more than $17 billion on the continent since 1999. But things are looking up: GM lost $345 million in Europe in the fourth quarter, which was tough -- but a lot better than the $761 million loss it posted in the year-ago period. Much of that improvement came from its ongoing efforts to reduce costs, GM said.
GM is probably two years away from profitability in Europe, but narrowing losses show that its efforts to rein in costs and improve per-sale profitability are already starting to pay off, despite very tough market conditions that have kept overall new-vehicle sales near two-decade lows.
This is GM's "catchall" region for Asia and Africa. It earned $208 million during the fourth quarter, down from $676 million a year earlier. The region's equity income -- made up mostly of the income from GM's Chinese joint ventures -- fell to $385 million from $419 million a year earlier, as ongoing expansion costs offset increased sales in China. Heavy pressure on GM's sales and margins in Australia continued to impact earnings; a restructuring effort in Australia is ongoing. Long story short: China continues to go well, but GM's operations elsewhere in Asia (and Australia) have struggled.
GM made just $27 million in South America during the quarter, down from $135 million a year ago. Like Ford (NYSE:F), which reported its earnings last week, tough competition, tough market environments, and tough exchange-rate swings all weighed on GM's efforts here.
GM's in-house financial arm earned $226 million, up from $145 million a year ago. GM's leasing business has grown significantly over the last year, thanks in part to expansion overseas. Subprime lending in the U.S. was 7.2% of the portfolio, unchanged from a year ago and still ahead of the industry average 5.9%, GM said. But credit losses were down to 2.1% from 3.3% a year ago.
So why did GM miss estimates?
Two factors were at work: higher taxes and some big special items involving overseas restructuring.
GM said its tax expenses for the full year were $1.7 billion more than in 2012, due to higher tax rates. And GM took about $1.2 billion in charges related to a couple of big overseas moves made during the fourth quarter: its decision to close its factory in Australia and the move to end Chevrolet sales in Europe.
The upshot: a transitional quarter as new CEO Mary Barra gets to work
GM made a lot of moves during the fourth quarter, as outgoing CEO Dan Akerson and GM's board sought to deal with some overseas challenges before new CEO Mary Barra took charge last month.
Those moves included the sale of GM's stake in French automaker PSA Peugeot Citroen (OTC:PUGOY), the end of Chevy sales in Europe, and the move to end production in Australia. GM also continues to move forward with plans to close one of its four factories in Germany, and with other cost-cutting (in Europe) and expansion (in China) efforts around the world.
General Motors last year successfully launched several key new products, including the Chevrolet Impala, the Cadillac CTS, and all-new Chevy Silverado and GMC Sierra pickups. More new products are due this year as GM completes a major overhaul of its global product portfolio that has been several years in the making.
Now the challenge for Barra and GM's reshuffled executive team will be to use those new products to increase the company's sales and profitability around the world, starting in North America. GM promised to reduce spending on incentives in the U.S., and it has -- but sales have lagged. The trick for Barra will be to preserve GM's hard-won progress on margins while improving sales, and simultaneously getting GM's troubled overseas operations back on track.
It's a big challenge, but GM has made a ton of progress over the last few years, even if its profits aren't yet impressive. Can Barra take the old General to the next level? We'll find out.