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General Motors' Third-Quarter Profits Fall 15 Percent From Last Year


"You can't cost-cut your way to prosperity in the business."

General Motors Co.'s third-quarter net income fell 15 percent from the previous year, dragged down by losses in Europe and South America and weak earnings in all areas aside from North America and China.

The company's shares fell 9 percent to $22.80 in morning trading Wednesday, as GM said it would not be able to meet its target of breaking even in Europe this year.

The company said that its net income fell to $1.7 billion in the quarter, or $1.03 per share, compared with $2 billion, or $1.20 per share, a year earlier. Still, the numbers manage to beat Wall Street's expectations.

Analysts polled by FactSet predicted earnings of 94 cents per share. Revenue rose 7.6 percent to $36.7 billion; analysts had expected $35.9 billion.

One of the reasons GM was able to maintain sales is because of the Japanese tsunami.

"General Motors benefited from Japanese automaker struggles in the third quarter and they were able to boost market share while cutting back on incentive spending. The addition of compelling products like the Chevy Cruze also contributed to their success," says Senior Analyst Jessica Caldwell in a recent USA Today report.

But there is a catch.

"With their Japanese competitors re-emerging, GM will have a tougher fight on their hands in the coming months against refreshed and redesigned offerings like the Toyota Camry and Honda Civic," she added.

GM posted a pretax loss of $292 million in Europe as the economy struggled. Its profit rose slightly in North America to $2.2 billion, but earnings at its international operations, including China, fell 29 percent to $365 million. South American operations also swung to a loss of $44 million for the quarter.

“G.M. delivered a solid quarter thanks to our leadership positions in North America and China, where we have grown both sales and market share this year,” G.M.’s chief executive, Daniel F. Akerson, said in a statement.

“But solid isn’t good enough, even in a tough economy. Our overall results underscore the work we have to do to leverage our scale and further improve our margins everywhere we do business,” he added.

Chief Financial Officer Dan Ammann agreed that the company had a “solid quarter,” but said that GM needs to improve its margin of profit in all regions.

In Europe, Ammann said the company has made “significant progress” and is more than $1 billion ahead of last year's pretax earnings. However, it still needs to cut out costs across the board and put out the right products that people will buy, Ammann said.

"There's no one silver bullet," he said.

GM said it would not break even in Europe this year because of "deteriorating economic conditions there."

Ammann said the company has an aging car and truck portfolio in South America and is in the process of refreshing it. It also offered buyouts to employees that resulted in a 4 percent cut in the work force there, he said.

To boost profits, GM is coming out with nine new vehicles in the next year in South America, including the Chevrolet Cruze compact and a subcompact named the Cobalt, the company said.

While the company plans to cut costs further, it mainly will boost profit margins by increasing revenue, he said.

"You can't cost-cut your way to prosperity in the business. You've got to grow the business, get the right vehicles on the road," he said.

The Associated Press contributed to this report.

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