GM says weakness in Asia leads to profit drop

Updated: 2013-07-26 13:30

By Michael Barris in New York (China Daily)

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General Motors Co, the leading foreign automaker in China, posted a 19 percent drop in second-quarter profit as it spent to roll out redesigned pickup trucks in the United States and faced increased competition and pricing pressure in Asia from Japanese rivals.

Despite signs of a slowdown in China, the results announced on Thursday again showed GM benefiting from its increasing niche in the world's biggest car market. It was the Detroit based company's 14th-straight quarterly profitt since emerging from a government-led bankruptcy restructuring in mid- 2009.

A day earlier, growing China sales also boosted results for GM's US rival, Ford Motor Co. Ford, of Dearborn, Michigan, posted stronger-than-expected second-quarter earnings and raised its profit and sales outlooks for the year as solid China sales offset losses in Europe. GM also has been losing money in Europe as weak economic conditions drive new car sales to historic lows.

"We continue to perform well in the two most important markets, the US and China," GM CEO Daniel Akerson said in a release. "We also made progress in our European business and saw the steady performance of our global brands, Chevrolet and Cadillac." Symbolizing the strength of GM's Cadillac brand, a mainstay of its pitch to prosperous Chinese buyers, the company broke ground for a new Cadillac assembly plant in Shanghai during the quarter.

Bob Socia, president of GM China, has forecast that Chinese demand for GM's passenger cars and commercial vehicles will "remain robust through the end of the year." Dramatizing China’s status as GM's largest market, GM now sells nearly three of every four vehicles it makes outside the US.

Ford has also been building overseas sales, but entered China much later than GM. GM aims to deliver more than 5 million vehicles annually in China before the decade's end.

But the slowing economy could hurt automakers in China, including GM. An AFP survey this week showed that China's economic growth dropped to 7.5 per cent in the second quarter, pointing to a further slowdown in the world's second-largest economy. A marketing executive with South Korea's Hyundai Motor Co, who asked to remain anonymous, told Reuters he expects second-half China sales to slow because of the weakening economy.

Meanwhile, Japan's Nissan Motor Co, which reported stronger profits on Thursday, said it saw "positive signs of improving sales volume in China" as it narrowed its sales drop in the country. A dispute between Tokyo and Beijing over a chain of islands in the East China Sea in September aroused anti-Japan sentiment in China and depressed sales of Japanese vehicles there.

Although the latest quarter saw GM continue to grow in China, where its sales have surpassed the total number of vehicles it sells in the US, its second-quarter market share declined. GM had 13.9 percent of the market in the latest quarter, down from 15.1 percent in the first quarter and flat with the same period a year earlier. Overall international market share, excluding Chevrolet Europe and Russia, was 9.3 percent, down from 9.5 percent in the first quarter, but up from 9.2 percent a year ago.

Globally, GM captured 11.5 percent of the market, up from 11.4 percent in the first quarter, but down from 11.6 percent a year ago.

In North America, where automobile sales are rising again after years of declines tied to competition from energy-efficient Japanese imports and a sputtering US economy, GM's market share rose to 17.3 percent from 17.1 percent in the prior quarter. But market share was down from the 17.4 percent share of a year earlier. Its US market share was 18 percent, up from 17.7 percent in the first quarter but down from 18.2 percent a year earlier.

Although operating earnings in China increased, CFO Dan Ammann said pricing pressure in Australia and Southeast Asia and costs in India caused international earnings, including China, to plunge 64 percent. Revenue from joint ventures in China rose 9.4 percent, less than the 11.7 percent gain of the first quarter, but up from the 9.3 percent rise of last year's second quarter.

Deliveries in China came to 751,000, down from the 816,000 of the first quarter, but up from the 672,000 of second-quarter 2012. Internationally, deliveries fell to 925,000 from 992,000 in the first quarter but rose from the 862,000 of the year-ago quarter. By contrast, North American deliveries rose to 880,000 from 761,000 in the prior quarter, and 820,000 in the year-ago period.

Global deliveries — including vehicles sold around the world under GM and joint venture brands — rose to 2,492 from 2,361 in the first quarter and 2,392 in the year-earlier quarter.

Earlier this month, GM said it had record sales in China, rising 11 percent in the first half to 1.57 million vehicles. Sales by GM and its Chinese joint-venture partners surged 10.6 percent during the first half of 2013, to nearly 1.6 million. By comparison, it sold more than 1.4 million vehicles in the US during the same period.

GM said net income in the latest quarter fell to $1.2 billion, or 75 cents a share, from $1.49 billion, or 90 cents, a year ago. Excluding costs related to the acquisition of preferred shares in GM Korea, earnings came to 84 cents a share. Revenue rose 4 percent to $39.1 billion. The results beat the forecasts of analysts surveyed by Thomson Reuters for earnings, excluding items, of 75 cents a share on revenue of $38.37 billion.

(China Daily USA 07/26/2013 page1)