Explain how gm profit will impact on us and global economy

Assignment Help International Economics
Reference no: EM131053721

Assignment

Instructions:

Reading: "GM profit tops view as North America strong, Europe improves". Explain how GM profit will impact on the U.S. and global economy? By Ben Klayman and Deepa Seetharaman.

DETROIT (Reuters) - General Motors Co (GM.N) posted stronger-than-expected quarterly profit on Thursday as the U.S. automaker kept a tight grip on costs in its North American and European businesses. GM shares rose 3.6 percent to $31.27, near their initial public offering debut of $33 in the fall of 2010, and hit the highest point since July of 2011. The increase is welcome news for GM's largest shareholder, the U.S. Treasury, which acquired its stake after a taxpayer-funded bailout. Treasury, which says it will sell its remaining position over the next year, gains almost $250 million for every $1 increase in GM's stock price.

"GM, while still beset with issues, is generally executing better than investors give it credit for," Barclays analyst Brian Johnson said in a research note. The company still expects to return to breakeven by mid-decade in Europe, where it has reported 13 straight years of losses, said GM Chief Financial Officer Dan Ammann.

RBC Capital Markets analyst Joseph Spak welcomed the results, pointing to the company's ability to cut costs. "Better-than-expected results (in Europe) will be well received, giving investors confidence that progress is being made and breakeven by mid-decade is possible," he said in a research note. GM's smaller U.S. rival Ford Motor Co (F.N) last week posted a stronger-than-expected first-quarter profit on strength in North America, but overall costs spiked as it took steps to reinvest in its global lineup and shore up European operations. About $225 million in higher structural costs in the quarter stemmed from Ford's efforts to fix the European business after an economic downturn hit consumer demand for new cars.

'TOO SOON TO CALL A BOTTOM'

Ammann said GM doesn't see any signs of a turnaround in Europe. "It's too soon to call a bottom in Europe." Ford officials have said the European auto industry may see some stabilization toward year-end or early 2014. GM's first-quarter net income attributable to common stockholders fell 13.5 percent to $865 million, or 58 cents a share, from $1 billion, or 60 cents a share, in the year-earlier period. The company took a $400 million hit to earnings due to falling prices for its vehicles and weaker volume.

The latest quarter included a $162 million noncash charge for the devaluation of the Venezuelan currency. Excluding one-time items, GM earned 67 cents, topping the analysts' estimate of 54 cents, according to a poll by Thomson Reuters I/B/E/S. "We are much more of a formidable competitor now than we have been in more than a generation," Chief Executive Dan Akerson said on a conference call.

Revenue fell 2.4 percent from last year to $36.9 billion, and was just above the Wall Street target of $36.6 billion. GM's North American unit reported operating profit of $1.41 billion, better than the Wall Street estimate of $1.21 billion, according to FactSet StreetAccount. The result was down from a year ago due to higher costs from preparing plants for new vehicle launches, especially the redesigned Chevrolet Silverado and GMC Sierra full-size pickup trucks, as well as lower shipments because the plants were down.

The company also saw a $200 million drop in operating earnings as it was forced to offer pricing deals on its current large truck line ahead of the launch of the new models. Analysts have warned that a weaker Japanese yen and deteriorating European market will likely lead to more competitive pricing in North America. Japanese automaker Nissan Motor Co said this week it was cutting prices on seven models representing 65 percent of its U.S. offerings.

KEEPING COSTS FLAT

GM kept North American costs in the quarter flat, which was better than anticipated. In January, company officials said costs would increase this year. GM officials said while most of the expected increase in costs in North America will occur in the second and third quarters because of the new-vehicle launches, it will benefit from higher prices and lower incentives associated with the new cars and trucks.

RBC's Spak said the North American unit's 6.2 percent profit margin was stronger than the 4.7 percent he expected. Ford had a North American margin of 11 percent in the quarter. GM's loss of $175 million in Europe was smaller than the $469 million loss Wall Street estimated, according to FactSet. In the region, GM cut $300 million in costs and was able to keep the pricing on its vehicles unchanged, both better than anticipated. Ammann said GM will see cost savings in Europe slow as the year progresses, and Edward Jones analyst Christian Mayes said fixing its European operations will be "a long slog."

Morgan Stanley analyst Adam Jonas said in a research note that it was the first time GM's Europe unit topped Wall Street expectations in nearly two years and the first year-over-year improvement in results in five quarters. The international unit, which includes China, had an operating profit of $495 million, while South America recorded a small $38 million loss. Both results were weaker than expected. Ammann said strong results in China were offset by weakness in the rest of the international operations. He said the South America business is expected "to build" this year on last year's profit.

GM said adjusted free cash flow in the quarter was a negative $1.3 billion due mostly to the lower earnings and timing-related items that it said would reverse during the rest of the year. The Detroit automaker ended the quarter with total liquidity of $35.3 billion in its automotive business. Treasury officials declined to say whether the rise in GM's stock price could accelerate the sale of its remaining stake. According to GM's proxy, Treasury still owned more than 241 million shares as of April 17, so it would need to sell at an average of about $79.03 a share to break even. Federal officials said last week that Treasury had recovered about $30.4 billion of its investment in GM as of the end of March. In January, Treasury initiated a prearranged written trading plan to sell the rest of the stake. The government got an 18 percent GM stake following the $49.5 billion bailout in 2009.

(Reporting by Ben Klayman and Deepa Seetharaman; Editing by Jeffrey Benkoe)

Reference no: EM131053721

Questions Cloud

Respond properly to its competitive environment : Provide the name of the strategy that provide strategic failure of a firm to respond properly to its competitive environment?
Carefully explain why a typical demand curve slopes downward : Carefully explain why a typical demand curve slopes downwards. Distinguish between normal and inferior goods. What are the main underlying determinants of demand for the Cars, Cloths and Healthcare.
Responsibility to provide health insurance to employees : What is Discrimina Inc.'s legal responsibility to provide health insurance to employees? What legal options does Frank Oldburr have to get himself covered with a health plan? Is there any way to come to a win-win situation here? Explain.
Instances of social feelings and inclinations : Recognize no fewer than two instances of the social feelings and inclinations related to the social issue. A couple instance of social feelings and slants fuse the monetary structure, (for instance, private undertaking), social speculation, (for i..
Explain how gm profit will impact on us and global economy : Reading: "GM profit tops view as North America strong, Europe improves". Explain how GM profit will impact on the U.S. and global economy? By Ben Klayman and Deepa Seetharaman.
Implementation and sustainability of change initiative : Engaging employees in the change process can help assure successful implementation and sustainability of the change initiative. What is the best way for leaders to engage employees or other stakeholders in the change process in an organization? Wh..
Discuss the different types of transaction failures : Discuss the different types of transaction failures. What is meant by catastrophic failure?
Still relevant and necessary in today work environment : Discuss your opinion regarding whether unions are still relevant and necessary in today's work environment. What other means might be used to ensure the ''employee voice'' in the workplace? Use a reference.
What are the typical kinds of entries in a system log : What are the typical kinds of entries in a system log?

Reviews

Write a Review

 

International Economics Questions & Answers

  Each student will find a current course-related issue while

each student will find a current course-related issue while watching television listening to the radio or reading the

  Define gross domestic product and gross national income

Define gross domestic product (GDP) and Gross National Income (GNI) and their main features. Identify the shortcomings of GDP as a measure of economic activity and economic welfare.

  Difference between the population policies of china nd india

India`s population is expected to overtake that of China within the next decade, what differences between these two nations could have contributed to this outcome? What are some of differences between the population policies of China and India?

  Evaluate the potential for a new business

Evaluate the potential for a new business or business expansion to a foreign country of your choice. You will evaluate business opportunities in a foreign country from the perspective of American business entry.

  International entry strategy

Examine issues of where, when, and how to be considered through an organisation planning an international entry strategy. How can the potential benefits be made to exceed the risks?

  Impact of per unit tax on the firm output

The manager of a paper mill is making for her most important test yet. On Tuesday morning, she must testify before a senate committee to justify company's high value.

  List the costs of high inflation

In the early 1930s there were a number of bank failures in U.S. What did this do to money supply? The New York Federal Reserve Bank advocated open market buys and list the costs of high inflation.

  Identify the main effects of the economic crisis

Identify the main effects of the economic crisis of 2008-2009 on tourism in Canada, the USA and Mexico. Why did the economic crisis of 2008-2009 affect Canada, the USA and Mexico unevenly?

  What is the relationship between nafta and wto

What is the relationship between the North Atlantic Free Trade Agreement (NAFTA) and World Trade Organization (WTO)?

  Explain why postal service is seeking a rate increase

In 2009, the US Postal Service increased first-class postage rates from 42 cents to 44 cents. The service had been losing money. One of the reasons is increased competition from companies such as United Parcel Service and Federal Express.

  What will happen if china decides to use govt intervention

Recently there have been several news talking about the slowdown of production (and productivity) in south-east Asia (especially China). Answer the following questions under the following assumptions: there are only two regions in the world; the U..

  Explain why do japanese people want to sell yen

Assume two countries: the U.S. and Japan. Show, using demand and supply, how the $/¥ exchange rate is determined. Why do Japanese people want to sell Yen Why do Americans want to buy Yen

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd