Changes underway at General Motors dealt a blow to the automaker’s quarterly profit as it refocuses on longer-term strategies.
General Motors’ profit plunged in the second quarter, down 42% from last year, with net income for the quarter at $1.7 billion versus $2.9 billion in the same period last year. This was accompanied by a slight decline in revenue, from $37.4 billion in 2016 to about $37 billion. Adjusted earnings per share went up to $1.89 from $1.79 a year ago, however, surpassing Wall Street projections.
To put these numbers into context, GM has had an eventful few years, and is in the process of major changes. In March, the company agreed to sell its Opel and Vauxhall divisions in Europe to French automaker PSA Group. Its big profit loss is attributed primarily to this pending sale, which should close by the end of the year. GM also reported a loss of $770 million on discontinued operations in Europe – a residual effect of its ongoing withdrawal from the European market.
There has also been trouble in GM’s core North American business, where quarterly pre-tax profits fell. It earned $3.48 billion in the region, down from $3.75 billion a year ago, due to slower sales of new vehicles. Overall the automotive industry is seeing sales drop in the US market following two consecutive record years. Passenger cars losing share to truck and sport utility vehicles has been a continuing trend.
Chief Executive Mary T. Barra and her senior management team are taking what she describes as a “disciplined approach” to refocusing operations. The sale of the European divisions is part of GM’s broader strategy to downsize its least-profitable businesses, the New York Times reports. This is helping the company shift resources into new technologies, in particular self-driving and electric vehicles, which it sees as growth opportunities.
Moving into this market is certainly not without risk. GM will have to balance a global automotive business with an expensive foray into high-tech models. It will be in direct competition with younger-generation Silicon Valley stars like Google, Tesla and Uber. “The auto industry is on the cusp of significant change, and G.M. has to prove that a longtime established player can be up to the task,” said Michelle Krebs, a senior analyst with the car-shopping site Autotrader.
Barra is determined to prove that GM is. “We are very, very serious and intent on putting something on the road,” she said of the company’s self-driving vehicles. “We definitely want to be first.”
