GM loses $3B in third quarter on Opel-Vauxhall sale
A multi-billion dollar hit is the last General Motors Co. will see of its money-losing Opel-Vauxhall business in Europe, leaving top executives the task of guiding the automaker through an uncertain future.
CEO Mary Barra and Chief Financial Officer Chuck Stevens confirmed Tuesday that the sale to PSA Groupe SA of France resulted in a $3 billion third quarter loss. But combined with moves to bring new car inventories down and streamline foreign business, they predicted it would lead to long-term shareholder value and growth for a company seeing a surging share price in recent months.
Investors seemed to agree, bidding GM shares nearly 3 percent higher on the day to close at $46.48. Since July, shares in Detroit’s No. 1 automaker have gained roughly $10, or more than 20 percent, after languishing for years in a narrow trading range pegged to its 2010 initial public offering price of $33 per share.
“The way to really think about the business is obviously continuing operations and the core business,” Stevens said Tuesday. “The fundamental value of the Opel/Vauxhall transaction, when you think about it from a company perspective, was to enable us on a go-forward basis to really focus our resources ... on growth opportunities in the business and continuing to improve the core.”
The third quarter loss was due primarily to a $5.4 billion charge tied to the sale of its Opel/Vauxhall brands in Europe. The company’s remaining operations earned $115 million, down 96 percent from the same period a year ago.
The automaker’s continuing operations in North America, South America, China and elsewhere in Asia were all profitable for the first time since the fourth quarter of 2014. The company said its earnings per share totaled $.08. When factoring in special items, GM’s earnings per share totaled $1.32, beating analyst estimates of $1.13 per share.
The company in a July regulatory filing said it expected to take a special charge of $5.5 billion to $6 billion related to the sale, up from previous estimates as low as $4 billion earlier this year due to more costs with the sale such as contract cancellations. The final cost came in under expectations, but hit profits for the quarter.
Income for GM’s continuing operations took a $2.3 billion non-cash charge related to that sale. That number was combined with costs associated with the discontinued business to make the $5.4 billion one-time charge.
During the second quarter, GM also announced it would stop selling vehicles in India and would sell its South Africa operations to Isuzu Motors Ltd.
“We delivered solid results even with planned, lower third-quarter production in North America,” Barra said in a statement. “We are managing the business with discipline to drive strong performance today, while investing in higher-return opportunities, including those that will shape the future of transportation.”
Barra told analysts on Tuesday that she’s “intent on leading the transformation of this industry.”
GM’s revenue from continuing operations totaled $33.6 billion, down 13.5 percent from a year prior. The company said its adjusted pre-tax earnings totaled $2.5 billion, down 31.1 percent. The company’s adjusted pre-tax earnings in North America were $2.1 billion, down from a year ago. GM’s international operations made $200 million, and it made $100 million in South America.
Planned downtime in North America reduced wholesale volume by 26 percent compared to a year ago. That lowered the number of cars on dealer lots by 160,000 units to 821,000 as of Sept. 30. The company reported it had an 88 day supply of vehicles at the end of September, down from 104 days a year ago.
Stevens expects dealer inventory at the end of the year will be lower than it was at the end of 2016. He did not change the company’s guidance for 2017 for the year of earnings per share of $6 to $6.50 a share — and for revenue, profitability and profit margins to be better or equal to 2016 results.
“We’re very, very much on track to deliver a very strong year,” he said. “Our 2017 results will be in line with the record results that we posted in 2016.”