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GM Stumbles and Investors Sell

On a day when the market is getting hammered, it's easy for people to dismiss the sell-off in General Motors shares. Don't make that mistake. The country's largest auto maker threw investors for a loop by giving a weak outlook for the 4th quarter.

GM building
Getty Images
GM building

Before GM reported a solid but not spectacular 3Q profit of $1.7 Billion, the street was already looking at the fourth quarter.

Analysts knew it would be slower, but nobody expected GM to forecast a 4th profit similar to last year's 4th quarter.

Analyst Adam Jonas with Morgan Stanley summed up the view on GM in his note to investors, "3Q11 results were in line with consensus and stronger where it mattered most (NA EBIT, balance sheet and cash flow) but was more than offset by a 4Q outlook of $1bn EBIT that is 30 to 40 [percent] below consensus and about 1/2 our number."

What's weighing on GM?

Some of the 4Q weakness is due to seasonal factors and vehicle launch costs, but the one issue that many are focusing on is Europe. After previously forecasting that it would break even on the continent, GM says it now expects to post a loss there for the year. This after losing $292 million in the third quarter in Europe.

On the company's conference call, GM CEO Dan Ake

rson said the company needs to lower its break even point in Europe and the company will get there. How is unclear.

Europe has long been a mess for GM, and while the company has cut it's losses there, the fact it is revising forecasts from break even to a slight loss shows the continent remains a trouble spot for a GM company that is on track in the U.S. And China.

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