Top Margin Menu

General Motors Gets Thumbs Up From S&P

China, Brazil Look Good For GM, But Opel Cause For Concern

General Motors, which is in the process of persuading investors around the world to buy some of the shares the U.S. government acquired while saving it from bankruptcy, has been given the seal of approval from Standard & Poors, albeit with a couple of warnings, including one concerning the European operation.

According to ratings agency S&P, the new GM is on the right track, after reporting second quarter EBIT profits of $2 billion and a profit margin of 6.1 per cent.

“We believe GM’s global automotive operations will generate at least mid-single digit pre-tax margins and positive operating cash flow in 2010, and there is potential for improvement in 2011 because of a gradual recovery in North America,” S&P credit analyst Robert Schulz said in a report.

S&P said it believes GM’s return to profitability can be sustained, even if margins do not improve significantly. Brazil and China are promising but possibly volatile. GM was still highly dependent on light trucks for profitability in North America. But S&P was worried by GM’s $17.1 billion underfunded pension liability, and by weak recovery prospects at GM Europe, where the market remains weak and GM’s Opel-Vauxhall operations unprofitable.

Europe
It was Europe which concerned S&P the most, where regional sales should fall between six and eight per cent this year as government scrapping incentives run out.

“Accordingly, European production levels could be lower in the second half of 2010 than in the first half. We believe GM’s pre-tax losses in Europe will continue for at least the rest of 2010. We expect tough competition and the complications related to the turnaround of its Opel unit to hurt 2011 results in the region,” Schulz said.

GM Europe lost $637 million before interest and taxes in the first half of 2010.

At the Paris car show, GM Europe CEO Nick Reilly said he hopes net profit will reach four percent to five percent of sales in 2012, but said Opel was more likely to achieve that target in 2013.


Neil Winton – October 15, 2010

Print Friendly, PDF & Email

,

No comments yet.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Site Designed and Administered By Paul Cox Photographic