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Economic woes in Europe put 15% dent in GM profits


General Motors rolls along at plants such as this assembly line in Wentzville, Mo., but third-quarter profits fell 15 percent from a year ago because of weak earnings in other parts of the world.

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DETROIT -- The fragile European economy is dragging down General Motors Co. profits, forcing its management to look harder for cost cuts and ways to boost revenue in the struggling region.

GM said Wednesday that its third-quarter profit fell 15 percent from a year earlier, pulled down by losses in Europe and South America and weak earnings in all areas except North America.

Europe faces a financial crisis and could slip into recession.

Growth is slow in several key nations. Italy, the region's third-biggest economy, is buckling under the weight of government debt. Greece faces default unless it can accept a new debt deal, and the region also is dealing with high unemployment, stingy bank lending, and declining exports. GM is among the first U.S. corporations to forecast lower earnings because of the problems.

GM Chief Executive Officer Dan Akerson told industry analysts the company's performance in Europe results partly from slower sales "which itself is a manifestation of Europe's economic morass." He said the results in Europe and South America are "not sustainable and not acceptable" and said GM must look for more ways to control costs. But Mr. Akerson stopped short of giving specifics.

Sales in Europe are about 18 percent of GM's 2.2 million global total, but they are expected to weaken in the fourth quarter.

Citi Investment Research analyst Itay Michaeli said other automakers have hinted at difficulties in Europe, but GM was sounding a louder alarm based on the third-quarter performance. He said third-quarter costs at GM Europe were about even with a bad quarter a year ago, so that means more cuts will have to be made, probably by cutting capacity with plant closures.

In the third quarter, GM's net income fell to $1.7 billion, or $1.03 per share, compared with $2 billion, or $1.20 per share, a year earlier.

The third-quarter figures also included $200 million in dividends paid on preferred stock that didn't exist a year earlier.

GM posted a pretax loss of $292 million in Europe.

The company's 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.

Chief Financial Officer Dan Ammann said GM had a solid quarter, but needs to improve its profit margins in all regions. The company also needs to take better advantage of its global scale, building the same cars for all markets to cut engineering and research costs, he said.

He said that in Europe, GM will follow the formula used to turn around the company's North American operations. GM cut its break-even point in North America by closing 16 factories since 2008.

It also won concessions from the United Auto Workers union, and it rolled out new vehicles that are selling well. But Mr. Ammann wouldn't say if plant closures are coming in Europe.

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