Detroit Three's results for first half of 2012

GM and Ford report profit decline due to significant losses in Europe

2012/08/23

Summary

Detroit Three's Vehicle Sales This Report outlines the business results by the Detroit Three (GM, Ford, and Chrysler) in the first half of 2012 (January to June) and future activities. Detroit Three had steadily improved their business performance in 2010 and 2011, but due to significant losses in Europe and the rapid decline of profits in South America (Ford also suffered losses in Asia Pacific and Africa), in the first half of 2012, GM's EBIT-adjusted (Earnings Before Interest and Tax-adjusted) fell from USD5 billion a year earlier to USD4.3 billion and Ford's Pre-tax Profit declined from USD5.4 billion to USD3.6 billion.

 The Detroit Three have enjoyed strong sales in the U.S. market, a major source of their profits. GM expects the volume of the 2012 U.S. light vehicle market to be 14 to 14.5 million units. Yet, the market share of the three OEMs, which grew in 2010 and 2011, declined from 47.1% to 45.0% in the January-July period of 2012 (Chrysler boosted its market share).

 GM says that, even if it loses some of its market share, it will not maintain its share by boosting production and incentives as it did before it filed for Chapter 11, and that it will maintain profitability by enhancing its product competitiveness (In the first half of 2012, GM's EBIT-adjusted in its business in North America grew by 4.4% y/y to USD3,656 million).

 Ford intends to fully promote "One Ford Plan" including in Europe and Latin America. It also announced in August that it would introduce the "Global One Manufacturing System".

 In Europe, GM and Ford are said to announce full-scale restructuring plans in the near future.

 Since sales in North America account for 90% of Chrysler's total sales volume, the OEM was not much affected in Europe and South America as GM and Ford were affected. Chrysler's sales in the U.S. grew by 27.7% in the January-July period of 2012, steadily improving its performance. In June 2012, Chrysler launched the Dodge Dart, which is the first model that it jointly developed with Fiat. It will introduce multiple models that it is jointly developing with Fiat in North America starting in 2013.

Related Reports:  GM: posts record net income of $7.6 billion in 2011 (Mar. 2012)
 Ford: sales goal for 2015 projected to be eight-million vehicles (Jun. 2012)


GM: EBIT-adjusted fell from USD5 billion to USD4.3 billion in the H1 2012

 In the first half of 2012 (January-June), GM's revenues declined slightly from USD75.6 billion to USD75.4 billion and fell by 4.4% in the second quarter. GM says that this decline is due almost entirely to the appreciation of the dollar against other major currencies.

 GM's consolidated EBIT-adjusted declined from USD5 billion to USD4.3 billion. Among GM's divisions, GM North America (GMNA), GM International Operations (GMIO), and GM Financial performed well, but GM Europe (GME) ran a deficit of USD617 million and GM's business in South America's profit fell by 56.5% to USD64 million (It ran a deficit of USD19 million in the second quarter).

 GM estimates that the scale of the light vehicle market in the U.S. will be 14 to 14.5 million units in 2012. GM expects that the EBIT-adjusted from its business in North America for the third quarter will remain at the same level of USD1,691 million in the first quarter.

 In Europe, in February 2012, GM reached an agreement with PSA on the sharing of platforms and joint purchasing. GM is also talking with labor unions in multiple countries on the details of restructuring plans, which takes time.

 In South America, where it suffers a loss, GM plans to introduce the Cruze HB, Sonic, and Spin MPV.

GM:Vehicle Sales

(1,000 units)
Old GM + New GM New GM
2009 2010 2011 First Half 2011 First Half 2012
GMNA U.S. Canada, Mexico and Other 2,084 400 2,215 410 2,504 420 1,262 207 1,316 209
Total 2,484 2,625 2,924 1,468 1,524
GME 1,668 1,663 1,735 922 852
GMIO total 2,453 3,072 3,302 1,627 1,791
thereof: China 1,824 2,348 2,573 1,272 1,415
GMSA 872 1,025 1,065 522 504
Total Worldwide 7,477 8,385 9,026 4,538 4,671

(Note) GMIO (GM International Operations) is in charge of regions except Europe, the USA, and South America. It is headquartered in Shanghai.

 

GM:EBIT-adjusted by segment

(dollars in millions)
2010 2011 First Half 2011 First Half 2012
Net Sales and Revenue GMNA GME GMIO GMSA GM Financial 83,035 24,076 20,561 15,379 281 90,233 26,757 24,761 16,877 1,410 45,238 14,329 11,610 8,259 625 47,076 11,407 13,005 8,118 918
Corporate & elimination (7,740) (9,759) (4,494) (5,152)
Total 135,592 150,276 75,567 75,373
EBIT-adjusted (Earnings before Interest and Taxes-adjusted) GMNA GME GMIO GMSA GM Financial 5,688 (1,953) 2,262 818 129 7,194 (747) 1,897 (122) 622 3,502 107 1,159 147 274 3,656 (617) 1,086 64 398
Corporate & elimination 86 (540) (185) (286)
Total 7,030 8,304 5,004 4,301
Operating income 5,108 5,656 3,400 2,817
Net income (loss) 4,668 7,585 5,387 2,491

 

Business in Europe: GM forms an alliance with PSA and its decision concerning the Bochum and Ellesmere Port plants

Alliance with PSA  In February 2012, GM announced that it would form a global alliance with PSA. For strategic investment, PSA will raise 1 billion Euros through a capital increase. GM will underwrite some of the capital increase to take a 7% stake in PSA, thus becoming the second largest shareholder following the founding family of Peugeot. Yet, the two OEMs will continue to produce and market products independently.
 GM and PSA will mainly focus on small and midsize passenger cars, MPVs, and crossovers. They will first share platforms, parts, and modules of B-segment models (production volume of 2.3 million a year) and D-segment models (production volume of 1.6 million a year) and will launch a new model based on the common platform by 2016.
 GM and PSA will establish a global joint venture company for procurement of parts. The combined annual purchasing volumes of parts and service by the two OEMs total about USD125 billion, which far exceeds those by the second or third OEM. In addition, Gefco in the PSA group cooperates in GM's logistics in Europe and Russia.
Launch of Opel Mokka  GM will launch Opel/Vauxhall Mokka in 2012, which it exhibited at the 2012 Geneva Motor Show. The model is a B-segment SUV, which is a sister model of the Buick Encore. It is said to integrate an urban car and a traditional SUV; a 4WD model will also be available. The Opel/Vauxhall Mokka comes with a 1.6-liter naturally-aspirated engine or a 1.4-liter turbo gasoline engine, or a 1.7-liter diesel engine. GM expects that sales in this segment will expand.
GM announces models to be produced at its two plants in Europe
Bochum plant in Germany  In June 2012, GM Europe (Opel) talked with IG Metal, which is an umbrella group of labor unions and confirmed that the Bochum plant in Germany would continue to produce the Zafira during the product life cycle of its current model, without compulsory separations until the end of 2016.
Ellesmere Port in the UK  Opel currently produces the Astra at its three plants - Ruesselsheim in Germany, Ellesmere Port in the UK, and Gliwice in Poland. Concerning the new Astra, which is scheduled to be introduced in 2015, Opel has decided that it would discontinue production in Ruesselsheim and would produce the model in the UK and Poland. It concluded an agreement with the labor unions in the two countries, which includes more flexible working conditions.

 

 



Ford further promotes One Ford Plan, introducing "Global One Manufacturing System"

 Ford's performance had shown a steady recovery and improvement in 2010 and 2011, but in the first half of 2012, whole sales volume, revenues, and profit slightly declined.

 Among regions, Ford registered a pre-tax loss of USD553 million in Europe, reported a significant decline of profit (pre-tax profit of USD59 million, down by 87.6%) in South America, and posted a pre-tax loss of USD161 million in Asia, Pacific, and Africa.

 Particularly in Europe, there is a structural problem, not a cyclical one; Ford estimates a significant loss of USD1 billion in 2012. Ford says that it would hammer out concrete measures for improvement in the near future (announced in July 2012).

 In regions where sales and profit have been declining, Ford says that, through the "One Ford Plan", it would launch new models that boast segment-leading fuel efficiency, safety, and design and would improve competitiveness.

 In North America, Ford reported increased sales volume and revenues from a year earlier and posted an operating profit ratio of 10.8%, which supports Ford's performance. Yet, in the January-July period of 2012, Ford's market share in the U.S. fell from 16.9% to 15.6% year-on-year. Ford estimates that its market share in the U.S. would also decline over the full year of 2012.

 It is said that Ford lost its market share in the U.S. partly because it had set a low production plan as it moderately estimated the status of the market in the U.S. for the first half of 2012. Ford plans to boost production in the second half of 2012 by introducing a third shift and shorter summer shutdown. Ford also launched the New Escape in the second quarter of 2012 and will release the New Fusion in the second half. Both models are expected to be core popular models.

 As a medium-term plan, Ford targets to sell 8 million vehicles worldwide in 2015 (announced in June 2011), planning the largest expansion of businesses in these 50 years mainly in Asia. In order to support this plan, Ford announced that it would introduce the "Global One Manufacturing System" (announced in August 2012).

Ford's Wholesales

(1,000 units)
2009 2010 2011 First Half 2011 First Half 2012
North America 1,927 2,413 2,686 1,351 1,370
South America 443 489 506 249 237
Europe 1,568 1,573 1,602 854 731
Asia Pacific Africa 604 838 901 468 467
Other (PAG) 324 211
Worldwide 4,866 5,524 5,695 2,922 2,805

 

Ford's consolidated results

2009 2010 2011 First Half 2011 First Half 2012
Revenue (billion) 118.3 129.0 136.3 68.6 65.7
Pre-tax results (million) 454 7,149 8,681 5,382 3,633
Net income attributable to Ford (million) 2,699 6,561 20,213 4,949 2,436

 

Ford: Revenues and Pre-tax results

Revenues (billion) Pre-tax results (million)
2010 2011 First Half 2011 First Half 2012 2010 2011 First Half 2011 First Half 2012
North America 64.4 75.0 37.4 38.3 5,409 6,191 3,752 4,143
South America 9.9 11.0 5.2 4.7 1,010 861 477 59
Europe 29.5 33.8 17.7 14.3 182 (27) 469 (553)
Asia Pacific Africa 7.4 8.4 4.2 4.6 189 (92) 34 (161)
Other Automotive (1,493) (601) (325) (269)
Special items-Automotive 8.1 (1,151) (82) (333) (489)
Total Automotive 119.3 128.2 64.5 61.9 4,146 6,250 4,074 2,730
Financial Services 9.7 8.1 4.1 3.8 3,003 2,431 1,308 903
Total Company 129.0 136.3 68.6 65.7 7,149 8,681 5,382 3,633
(Note) 1. According to Ford, rapid decline of profit in Latin America is due to lower sales volume, protectionist moves in some countries, and stiffer competition.
2. Ford enjoys favorable sales in Asia, Pacific and Africa, but reported a loss due to higher costs for introduction of new models and capital investment for future growth.

 

Ford builds a structure that is capable of boosting production by 400,000 units on an annual basis in North America in H2 2012

Low production plan  In order to make up for the lack of inventory due to its low estimate of the scale of the market in North America for the first half of 2012, Ford is currently boosting production. Ford produced 1.414 million units in North America, up by 47,000 y/y, in the January-June period of 2012.
Increase of production by 40,000 through shorter summer shutdown  Ford will shorten the 2012 summer shutdown from the usual two weeks to one week at its six vehicle plants including Chicago Assembly and Dearborn Truck in North America, and at its major engine and transmission plants. It will boost production by 40,000 units compared to the original plan.
Increase of production by 400,000 on an annual basis  In addition to the above measures, Ford is currently introducing a third shift at its vehicle and powertrain plants and is speeding up production lines. It will build a structure that is capable of boosting production by 400,000 on an annual basis, including 40,000 through a shorter summer shutdown, in the second half of 2012.

 

Ford boosts production capacity in China and Thailand

Enhancement of the Chongqing plant and construction of the new Hangzhou plant  Changan Ford Mazda Automobile (CFMA), which is Ford's joint venture company in China, completed a second plant in Chongqing that is capable of producing 150,000 units a year in February 2012. Ford's production capacity of passenger cars in China increased to 600,000 units including the Chongqing first plant (250,000 units) and Nanjing plant (200,000 units). The Ford Focus will be produced.
 On April 6, 2012, the expansion plan of the Chongqing plant was announced. The production capacity of passenger cars will be boosted by 350,000 units (100,000 at the first plant and 250,000 at the second plant). The expansion work will begin soon and production will start in the second half of 2014. Ford's production capacity of passenger cars in China will increase to 950,000 units.
 On April 19, 2012, Ford and CFMA announced that they would invest USD760 million in the construction of a new passenger car plant in Hangzhou, Zhejiang. The new plant will begin production of 250,000 units a year in 2015. CFMA's production capacity of passenger cars will double to 1.2 million units from that of 2012.
Thailand  In May 2012, Ford held an opening ceremony of its new plant in Thailand. Ford independently invested USD450 million in the construction of the plant. The new plant is capable of producing 150,000 a year. It started production of the New Focus in June. The production capacity in Thailand increased to 425,000 units including AutoAlliance Thailand, which is a joint venture with Mazda.
(Note)  Under its medium-term plan announced in June 2011, Ford said that it would sell 8 million vehicles worldwide by 2015, and that nearly one-third of global vehicle sales in 2020 would come from Asia Pacific and Africa (the ratio is 15.8% in 2011).

 

Ford introduces Global One Manufacturing System

Global One Manufacturing System  Ford is deploying a new single production system (Global One Manufacturing System) to its global production facilities (announced in August 2012). It will increase the number of vehicle types that one plant is capable of producing by 25% by 2015 and will improve the global capacity utilization on a two-shift basis by 27%.
Improvement of flexibility  In 2011, 55% of Ford's production facilities had flexible body shops. It will increase the ratio to 65% in 2012. The new plants to be built in Asia and other regions will be capable of producing six to seven models on the same production line.
Enhancement of production in Asia  In order to achieve a plan to sell 8 million vehicles worldwide in 2015 (announced in June 2011), Ford will build nine new plants in Asia, Pacific and Africa planning to boost production capacity to 2.9 million units a year.
Expansion of use of virtual tools  Ford will increasingly use virtual tools that simulate the assembly process of vehicles and will improve the efficiency of the designing of production lines and will make the introduction of new models more efficient. With the virtual tool and the standard production process worldwide, Ford will improve the investment efficiency by 8% a year.

 

 



Chrysler expects to sell 2.4 million worldwide and operating profit of USD 3 billion for 2012

 Chrysler's sales in North America (including Mexico) accounted for 90% of its retail sales in the first half of 2012. It was not so affected by the businesses in Europe and South America as GM and Ford were. Chrysler is steadily improving its performance as the automotive market in the U.S. improves.

 The 16 models (Fiat 500 and current 15 Chrysler models) introduced in North America between 2010 and the beginning of 2011, which were significantly upgraded or underwent a facelift, contributed significantly to sales between 2011 and July 2012.

 (For further details on the 16 models that were significantly upgraded or underwent a facelift, please refer to the following report on June 1, 2010) "Chrysler posts operating profit in Q1,expecting breakeven or profit in 2010".

 In June 2012, Chrysler launched the Dodge Dart, which is the first compact car co-developed with Fiat and which adopts Fiat's multiple technologies to improve fuel efficiency. Chrysler will introduce a large number of compact cars/midsize cars that it jointly develops with Fiat in North America starting in 2013.

 For the full-year forecast for 2012, Chrysler estimates worldwide shipments of 2.3 to 2.4 million units, revenues of about USD65 billion, and Modified Operating Profit of more than USD3 billion, expecting steady expansion of businesses.

Chrysler: Worldwide Vehicle Sales

(1,000 units)
2010 2011 First Half 2011 First Half 2012
U.S. Canada Mexico 1,085 205 79 1,369 231 82 640 122 39 834 131 40
North America Ratio of North America 1,369 90.3% 1,682 90.7% 801 91.0% 1,005 91.0%
International 147 173 79 100
Total 1,516 1,855 880 1,105

 

Chrysler: Financial Results

(dollars in millions)
2010 2011 First Half 2011 First Half 2012 2012 Guidance
Worldwide Shipments (1,000 units) Net Revenues Modified Operating Profit Modified EBITDA 1,602 41,946 763 3,461 2,011 54,981 1,975 4,754 999 26,785 984 2,464 1,237 33,154 1,495 2,808 2.3-2.4 M 65,000 3,000
Net income (loss) (652) 183 (254) 909 1,500
Adjusted Net Income (652) 734 297 909
(Note) 1. Modified Operating Profit is computed starting with net income and then by adding back tax, interest payment, benefit costs for employees, restructuring cost, and other financial expenses.
2. Modified EBITDA (Earnings before interest, tax, depreciation and amortization) is computed with Modified Operating Profit and then by adding back Depreciation and amortization.
3. Adjusted Net Income excludes temporary expenses such as USD551-million special expenditure for the reduction of debt in the Q2 2011.
4. In the 2012 Guidance column, the announcement in February 2012 is confirmed at the announcement of the 2012 2Q results.
5. In January 2012, Fiat additionally acquired a 5% stake in Chrysler to hold a 58.5% stake; the remaining 41.5% of Chrysler's equity is held by VEBA of UAW. In July 2012, Fiat announced that it would buy a 3.3% stake in Chrysler from VEBA to increase its stake to 61.8%.

 

Chrysler launches Dodge Dart in June 2012

Platform  The platform is developed based on the CUSW (Compact US Wide) platform, which is a long-wheel version platform for compact/midsize vehicles (used in the Alfa Romeo Giulietta and the Fiat Bravo) , which was developed by Fiat.
Engine  The model comes with a 2.0-liter naturally-aspirated engine or a 1.4-liter MultiAir turbo engine. A 2.4-liter MultiAir engine will also be available in the future.
Transmission  A six-speed MT, a six-speed AT, or a six-speed DDCT (Dual Dry Clutch Transmission) is available.
Prices and features  The model boasts fuel efficiency equivalent to that of compact cars and interior as wide as that of midsize cars. It is equipped with as many as 60 class-leading safety & security features. The price ranges from USD15,995 to USD22,495.

 

 



U.S. market between January and July 2012: Detroit Three have a combined market share of 45.0% (down 2.1% y/y)

 In the January-July period of 2012, the U.S. market scaled up by 14.0% y/y.

 During the two years between 2010 and 2011, the market share of the Detroit Three recovered by slightly more than 2%, but declined from 47.1% to 45.0% in the January-July period of 2012. Among OEMs, GM's share fell by 2.0%, Ford's by 1.3%, while Chrysler's share grew from 10.2% to 11.4%.

 The market share of the Japanese OEMs, which recovered from the influence of the Great East Japan Earthquake, increased from 35% to 36.9% (Hyundai group's share fell from 9.1% to 9% while the combined share of the European OEMs grew from 8.9% to 9.1%).

U.S. Light Vehicle sales and market share

2010 2011 Jan.-Jul. 2011 Jan.-Jul. 2012 2012/2011
Unit sales GM 2,211,699 2,503,797 1,476,525 1,516,950 102.7%
Ford 1,964,059 2,143,101 1,250,051 1,313,865 105.1%
Chrysler 1,085,211 1,369,114 751,958 960,157 127.7%
Detroit Three 5,260,969 6,016,012 3,478,534 3,790,972 109.0%
Total Japan 4,475,708 4,457,532 2,585,985 3,109,911 120.3%
Total Korea 894,496 1,131,183 672,965 755,471 112.3%
Total Europe 958,671 1,174,158 655,382 769,595 117.4%
Total U.S. Light Vehicle 11,589,844 12,778,885 7,392,866 8,425,949 114.0%
2010 2011 Jan.-Jul. 2011 Jan.-Jul. 2012 Change of share
Market share GM 19.1% 19.6% 20.0% 18.0% -2.0%
Ford 16.9% 16.8% 16.9% 15.6% -1.3%
Chrysler 9.4% 10.7% 10.2% 11.4% 1.2%
Detroit Three 45.4% 47.1% 47.1% 45.0% -2.1%
Total Japan 38.6% 34.9% 35.0% 36.9% 1.9%
Total Korea 7.7% 8.9% 9.1% 9.0% -0.1%
Total Europe 8.3% 9.2% 8.9% 9.1% 0.3%
Total U.S. Light vehicle 100.0% 100.0% 100.0% 100.0%

(Note) U.S. Light Vehicle sales in 2009 were 10,431,509 units, and Detroit Three's sales were 4,680,385 units with market share of 44.9%.

 Sources: News reports and the financial statements and press releases by each OEM.

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