General Motors Company (GM - Free Report) decided to retrench 598 workers in its Sao Jose dos Campos assembly plant in Sao Paulo, Brazil due to its incompetence. The automaker had initially attempted to shut down the plant leading to political conflicts.
However, after negotiating with the union leaders, General Motors decided to layoff workers at the assembly line, which employs 1,800 workers. The company has also agreed to invest $249 million at the Sao Jose dos Campos plant and retain the assembly line in operation at least until the end of the year, which manufactures Corsa, Zafira and Meriva models.
The laid off workers had been on paid leave for several months. The entire Sao Jose dos Campos facility employed about 7,500 workers in 2012.
General Motors has been struggling with higher labor costs and weak demand in Brazil for a long time. In 2012, Brazil’s productivity in the industry declined to a nine-year low.
Last year, General Motors closed down a shift at its Sao Jose dos Campos facility in an attempt to scale back its production in the country. The automaker had aimed to clear its inventories in the country’s dealerships, which was near the highest since 2008.
Brazil’s auto market has weakened owing to huge household debts and sluggish investment in roads leading to traffic gridlocks. Apart from GM, the weak market has affected other key automakers in the country including Fiat SpA , Ford Motor Co. (F - Free Report) and Volkswagen AG (VLKAY - Free Report) .
GM, a Zacks Rank #3 (Hold) stock, posted a rise in profits to $0.8 billion or 48 cents per share in the fourth quarter of 2012, missing the Zacks Consensus Estimate by a penny, compared with $0.7 billion or 39 cents in the same quarter of 2011. The results excluded net gain from special items of $0.1 billion or 6 cents in the 2012-quarter and net loss from special items of $0.2 billion, or 11 cents in the 2011-quarter.
Revenues in the quarter scaled up 3.4% to $39.3 billion, which was higher than the Zacks Consensus Estimate of $38.6 billion. Unit sales escalated 4.2% to 2.3 million vehicles. The automaker occupied a market share of 11.5% during the quarter, down from 11.6% in the year-ago quarter.
GM expects to boost its top-line in 2013 with the help of new vehicle launches. At the same time, the company believes cost control measures will boost its bottom line growth. It expects 2013 capital expenditures to be at the 2012-level.