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General Motors (GM) is a multinational automaker and is amongst the world's largest automakers by vehicle sales unit. It is doing business in more than 157 countries and divided into five business segments: North America, Europe, International Operations, South America, and Financial. In this report, we will discuss the macro and micro economic factors which might impact (favorable and unfavorable) its earnings.

Market Share

In the first quarter of 2013, General Motors held a worldwide market share of 11.4%, up from 11.2% a year earlier. Total United States market share increased 0.5% to 17.7% while the North American share went up from 16.7% a year earlier to 17.1% in the first quarter. Total European and Asian market share also edged up. In the United States, General Motors truck market shares show a significant improvement of 1.4% while the car market share has fallen by 0.5% year-over-year.

General Motors generate 62% of its total revenue from the North American region while Europe and South America represent 13% and 10% of total revenue respectively. The company generates 10% of its revenue from its international operations. International operations segment includes Asia-Pacific, Latin America, Africa, and Middle East.

Fundamentals

In the first quarter of 2013, General Motors reported a net income of $1.18 billion or $0.58 per share, down from $1.32 billion or $0.60 per share a year earlier. Wall Street's estimate was $0.54 per share profit. The decrease in net income was also due, to reduced sales in North America, and reduced profitability in its international unit. Revenue decreased 2.3% to $36.88 billion in the first-quarter.

The company reduced its first quarter European losses to $175 million from $256 million a year earlier. The company is aiming to achieve the break-even point in Europe in mid-decade. South America region reported a loss of $38 million, down from profit of $153 million a year earlier while the earnings from international operations dropped to $495 million from $521 million year-over-year. The company has ended its first quarter with cash and market securities of $24.3 billion and a debt of $5.2 billion.

Currency risk

Due to a loss on Venezuelan currency devaluation, net income of General Motors depressed by $200 million in the first quarter of 2013. This hit was because Venezuela devalued its Bolivar currency. General Motor generates more than 60% of its revenue from North America which could significantly affect GM's financial results. Barclays believes that strength in the dollar is temporary and rates will weaken moving forward which means low risk for General Motors.

North America Market

North America is the home market of General Motors where its profit shrank 14% to $1.41 billion. According to Wall Street, this decrease was due to reduced production of its two highest margin trucks by 12% and restructuring of its manufacturing plants for upcoming Chevrolet Silverado and GMC Sierra pickups which depressed its earnings.

In North America, General Motors derives a profit of $1,747 on each vehicle built, down from $1,905 a year earlier. The decrease was due to incentives given in the last quarter, in order to reduce the 2012 model truck inventory to make way for vehicles coming this summer. It's competitor Ford Motor (F) made a profit of $3,114 from each vehicle built from the North America region in the last quarter. In the first quarter, Ford reported a loss of $462 million from European operations as compared to $175 million of General Motors.

Future Catalysts

Wall Street is expecting that General Motors' financial performance will improve in the second half of this year due to the introduction of 13 new Chevrolet vehicles in the U.S. and an additional 12 new vehicles in different regions of the world. General Motor announced that it intends to open four new plants in China by the end of 2015, which are expected to boost production by 30% or 5 million.

The company is planning to close its Germany factories because of shrinkage of vehicle demand for a sixth straight year. This closure will result in cutting of 3,000 jobs by the end of 2014. Besides this, it plans to cut $500 million annually in the next three years which will help to reduce its Europe losses.

General Motors is shifting its new Opel's Mokka sport vehicles production facility from South Korea to Spain due to growing demand in emerging markets. Opel is the General Motors loss making European division which sold 1 million cars last year. After the new Mokka car went on sale in June 2012, the company has booked 110,000 orders from Europe region. The aim of this shift is to use the plant's spare capacity and to cover the fixed cost of factories.

Barclays research increase revenue and earnings estimates for General Motors due to strength in North America's auto industry. Barclays believe that General Motors may face sequential deterioration from Europe region but there may be some upside from healthy inventory levels, better pricing, and incremental production.

Rising sales in China and U.S.

According to General Motors, its China sales in June went up 10.6% from a year earlier. Also, General Motors beat its rival Volkswagen AG (OTCQX:VLKAY) in China Market. In the first half of 2013, Volkswagen sold 1.54 million vehicles in China as compared to 1.57 million vehicles sold by General Motors.

Due to improving housing market in the U.S., pickup trucks demand increased in June. In June, the U.S. auto industry rose 8% compared with a year earlier which led to an improvement in General Motors' and its competitor Ford's market share. General Motors' sales in June went up 6.5% to 264,843 cars and trucks while Ford's sales increased 13.4% to 235,643 vehicles.

General Motor stock is currently trading at 52-weeks high of $36.40 and surged 22% so far this year.

Final Words

It seems General Motors is well positioned to gain a competitive edge from the higher demand in the emerging markets like China. Its European operations have shown an improvement in losses and the company expects that some rebound can begin in the next year. Increasing demand of trucks in the U.S. market and plans to open new production facilities will definitely show a significant improvement in its top and bottom line.

Source: Time To Consider GM