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General Motors Corporation (NYSE:GM) is the 2nd largest auto manufacturer in the world by virtue of its considerable global market share and vehicle unit sales. GM designs, manufactures and sells cars and trucks as well as automobile parts all over the world. The company also offers automotive financing services to its customers through General Motors Financial Company, Inc. GM's automotive operations meet customer demands through four automotive segments, namely GM International Operations [GMIO], GM North America [GMNA], GM South America [GMSA] and GM Europe [GME]. General Motors' worldwide vehicle sales for the whole of 2012 were 9.3 million units.

GM's shares closed the day on 16th July 2013 trading at $36.50, exactly midway between the firm's 52-week low of $36.28 and the $36.72 high. The narrow trading range for GM's shares in the past year suggests a fairly stable stock. GM's market fundamentals and major technical indicators all point to a promising future for the automaker. In this article, I will concentrate on giving investors the economic factors - both macro and micro - that are likely to drive GM's earnings in the coming quarters and the next few years.

Market Share

General Motors commanded an 11.4% global market share in the first quarter of 2013 after sales of 2.36 million units in the quarter; a 0.2% improvement compared with the firm's market share in Q1 2012 that ranks the firm second after Toyota (NYSE:TM) in market share. Toyota occupies the commanding heights of global auto-manufacturing with 2.43 million vehicle sales in Q1 2013. GM's close competitor, Ford Motors (NYSE:F), sold 1.54 million units last quarter. Ford Motor industry's market share in the United States improved by 0.5% in Q1 2013 to 17.7%, while GM's North American market share leapt from 16.7% last year to 17.1% in Q1 2013. Vehicle unit sales in the United States for the first quarter of 2013 were mixed: the firm's car market share dropped by 0.5% while its truck market share climbed by 1.4% compared to 2012.

GM's stronghold as far as vehicle sales are concerned is North America where the giant automaker derives a commanding 62% of its total sales revenues. Sales revenues in Europe come in a distant second at 13% of total revenue, while South America accounts for 10% of its revenues. The rest of the company's international operations (Latin America, Asia-Pacific, Middle East and Africa) generate a further 10% of revenues.

Fundamentals

GM reported a $1.18 billion net income in Q1 2013, equivalent to a $0.58 EPS, slightly down from Q1 2012's EPS of $0.60 but above Wall Street estimates of $0.54 EPS. The lower net income posted by GM was attributed to falling sales in North America, and profitability from the firm's international unit-earnings from this market segment dropped by 5% from $521 million to $495 million. Revenue fell by 2.3% to $36.88 billion in Q1 2013 compared to Q1 2012. GM has a considerably lower operating margin at 2.6% than both its main rivals Ford Motors at 8.2% and Toyota's 5.99%.

GM's loss-leading European operations were still in the red in the quarter after posting a net loss of $175 million - an improvement from last year's $256 million loss. GM expects its European operations to break-even in 2015. The firm's South American loss-making operations also showed a considerable improvement by cutting losses from $153 million in Q1 2012 to just $38 million in Q1 2013. GM ended Q1 2013 with cash and market securities totaling $24.3 million and a $5.2 billion debt.

High Customer Satisfaction Levels

Customer satisfaction is critical when in the auto industry. GM has been able to capitalize on the high popularity of its Chevrolet model that has helped it maintain a good customer satisfaction rating (see graph below) in the domestic US market.

(click to enlarge)

Venezuelan Currency Risk

Venezuela devalued its Bolivar currency in February this year by a staggering 46.5% to the dollar that led to the currency being exchanged at 6.30 to the dollar as opposed to the earlier exchange rate of 4.30 to the dollar. GM incurred hefty losses after the devaluation of the Venezuelan currency, leading to the firm's net profit being depressed by 200 million in Q1 2013. General Motors takes more than 60% of its revenue from the North American market. GM recorded a 0.09 loss per share on special items including a charge pegged to the Bolivar devaluation. Despite the unfortunate development that took a hit at diverse companies operating in the region, many financial analysts believe that the dollar is soon going to weaken relative to the Bolivar and help mitigate against the risk.

North American Market

Perhaps General Motors' biggest worry is the shrinking earnings in its largest market - North America. Profits in this market fell a whole 14% to just $1.41 billion in the quarter. The falling profits in North America were brought about by a 12% production cut in its leading truck models. GM makes most of its money from SUV and truck sales. The lower profits were also occasioned by the restructuring of GM's manufacturing plants in anticipation of the planned manufacturing activity of GMC Sierra trucks and Chevrolet Silverado.

GM currently makes $1,747 profit on each vehicle it builds, down from $1,905 recorded last year. This is due to the huge incentives offered by the automaker in a bid to clear off its inventories in preparation for summer sales. In comparison, Ford Motors managed to eke out a $3,114 profit from every vehicle it sold in North America last quarter. Its European operations, however, fared much worse than GM's and returned a $462 loss compared to the latter's $175 million loss.

Rising sales in the US and China

GM's most promising market is currently China, where sales jumped 10.6% compared to last year. Even more notable is the fact that GM pipped its major rival Volkswagen [AG] in the Chinese market in Q1 2013 after selling 1.57 million units compared to Volkswagen's 1.54 million units.

The demand for pickup trucks in the US rose sharply by 8% in June 2013 compared to last year fueled by growing housing demand.

Future Catalysts

Wall Street expects General Motors' financial performance to improve for the remaining second half of 2013, driven by GM's introduction of 13 new Chevrolet models in the U.S. as well as an additional 12 new models in other regions around the world. General Motors recently announced that it intends to operationalize 4 new plants in China by late 2015.This will boost overall production by at least 30% or 5 million units.

In a move aimed at trimming its losses in the European market, GM announced that it will close down its German factories due to a slackening demand that has shown no signs of receding for six straight years. GM is also shifting its Opel Mokka production facility from its current South Korea location to Spain. Opel is GM's loss-leader in the European market. This might not be enough to completely turn around the company's European market; at least not according a research done by Barclays, which revealed that GM is likely to face sequential deterioration in its European market with a few potential upsides that might be realized due to better pricing, improved inventory health and incremental production.

Final Words

GM seems well-positioned to gain a more competitive edge in the increasingly lucrative emerging markets, particularly China, where demand is steadily growing. Its European market segment is also gradually cutting its losses and might rebound around 2015. Demand for light trucks in the US is growing at a healthy pace. GM looks set to make a major comeback in just a few years.

Source: The Time Is Right To Place Your Bets On General Motors