General Motor Corp.'s has posted a $3.25 billion net loss in the first quarter, in wake of the automaker’s small profit a year ago. The company has been performing outstandingly well in Latin America and Asia; however, the company’s pretax loss in North America quadrupled to $812 million, as the slumping U.S. economy and high gas prices took a toll on sales of GM’s most profitable vehicles – the pickup truck and large sport-utility vehicles.
General Motor’s lower-than-estimated earnings have also hit hard on GMAC with a $276 million loss stemming from GM’s 49% stake in GMAC. The primary reason for GMAC’s losses has been the housing slump and deterioration in the credit markets. GM's $3.25 billion net loss included a $1.45 billion impairment charge reflecting the decline in the value of its GMAC stake. GMAC executes the automaker’s financial and insurance operations. It also provides a range of financial services, including consumer vehicle financing, automotive dealership and other commercial financing, residential mortgage services, automobile service contracts, personal automobile insurance coverage and selected commercial insurance coverage.
GM is making attempts to do more business outside of its home territory in the US with plans to add capacity in Eastern Europe and Asia. However, as the company’s loss in the first quarter showed, the challenges of costs associated with troubled parts suppliers, inventory reduction and rising commodity prices are still present as a continuing challenge. "We continue to leverage our global product portfolio to take advantage of tremendous growth in key emerging markets," GM Chief Executive Rick Wagoner said in a statement.
Despite the company’s losses in the first quarter, the shares have surged today - up 14%. GM is looking for a positive second-half outcome as its core automotive business is showing considerable signs of health, generating a profit in the quarter despite declining sales and revenue in North America. GM is producing new cars in the U.S., including the Cadillac CTS and the Chevrolet Malibu, that are demanding higher transaction values. Meanwhile, momentum in Brazil, China, Russia, India and elsewhere helped GM turn a profit in all units outside North America.
Despite GM’s issues that coincide with GMAC and the poor North American economy, GM is experiencing other problems alongside the manufacturing and sales of their vehicles. GM has seen troubles with two part-suppliers: The Detroit-based automaker recorded another $700 million charge related to insecurity at Delphi Corp., its largest supplier. Delphi is unable to exit from bankruptcy protection, and GM has set aside $8.5 billion in various charges and bailout assistance aimed at aiding Delphi's recovery. In addition, GM has the most witnessed the most severe risk from the conflict at American Axle & Manufacturing
Holdings Inc., which makes critical components for trucks and SUV’s. There was a strike at American Axle during its third month that created an $800 million punch to earnings in the quarter as GM lost 100,000 vehicles worth of production.
The company not only has its problems with the economy and other companies it works alongside with, but it also has its constant competition with other such automakers as Ford Motor Co., GM’s cross-town rival, who has reported $100 million in net income last week and taking strong strides in the auto industry to keep their head above water.
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