In a press release dated April 24, and filed with the SEC on form 8-K, General Motors reported year-over-year shortfalls in many of its markets, including North America, where sales fell by over 16,000 units and South America where the dip was by over 20,000 cars. However, General Motors posted gains in China and Europe of 102,741 and 2,435, respectively.

Overall, the company saw its earnings before interest and taxes (EBIT) $1.8 billion dollars lower than the same quarter last year. This was attributed to a $1.3 billion dollar recall charge the company incurred when it was revealed that a problem stemming back to 2004 resulted in recalls of up to 2.6 million automobiles.

The recall resulted from faulty power steering mechanisms in Saturn Ions. Government safety regulators discovered that this known issue had prompted 30,000 warranty claims and 4,800 complaints. The National Highway Traffic Safety Agency (NHTSA) first received a report of the issue in 2004 but the investigation was not opened until 2011.

Recalls are a one-time cost to the company which Wall Street will likely see as easily absorbed and overcome by the auto giant. The company has also initiated a proactive response to the recall issue, including independent investigation, employee programs to encourage speaking out about safety issues, and all GM engineers are now mandated to obtain Six Sigma certifications.

GM President Dan Ammann said that the company felt encouragement from sales in China which outperformed the industry. He was likewise pleased in the European performance where the Opel sales are rising on an improving European economy. Though the other auto markets and other sectors of the corporation all saw lower year-over-year numbers, the total net revenues rose by half of a billion dollars.

General Motors also was able to pay a dividend to common stock holders for the first time since its IPO in 2010. The dividend is 30 cents per share, but market watchers often see a dividend as a mark of a sound investment. Without the gains in China and Europe, it’s unlikely that General Motors would have been able to post the dividend, much less be able to claim a healthy quarter. The growing Chinese marketplace is doubtless a key factor towards future growth in the automobile industry.

Other fundamentals look good for GM, including the fact that all of their brands were ranked above average by JD Power’s US Customer Service Index study. Cadillac and Buick were ranked the top brands in their sectors.

The Chinese market’s growth is expected to ebb in the near future, but the long-term prognosis is positive. GM is expected to increase manufacturing operations in the People’s Republic by 65 percent and Ford Motor Company has opened three plants there since 2012.

Overall, GM is off to a strong year. With the recall a thing of the past, Wall Street looks to see good things from the auto company going forward. General Motors can likely turn around its North and South American sales problems and continue its gains in China and Europe as those markets perpetuate their growth cycles.

By Hobie Anthony

Sources:

Forbes

Reuters

MoneyCNN

Yahoo7

Rank and Filed

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