Ten months after emerging from a government-orchestrated bankruptcy, General Motors Co. on Monday reported its first quarterly profit in three years, driven by dramatic cost reductions and improved global sales.
GM made $863 million in the first three months of 2010, compared with a $6 billion loss a year earlier, a performance that surprised analysts who expected more modest results. Revenue grew 40% to $31.5 billion, and the company generated $1 billion in cash.
But GM finance chief Chris Liddell warned that the next few quarters may not be as strong, as troubles loom in Europe and the U.S. recovery remains tenuous. Mr. Liddell, in a clear effort to avoid GM's old ways of promising results it couldn't deliver, made a point to play down the possibility that the solid quarter signals GM will go public this year.
"My mantra is to focus on the day job and the [initial public offering] will be successful," he said in an interview. That could happen anytime from a few months until next year, he said. "This is an industry where a lot of variables can change. There is no reward in my field for being overly optimistic."
GM is being propped up by about $43 billion in U.S. loans. The government can't try to recover the money until GM returns to the public stock markets and the Treasury can begin selling its 61% stake in the company.
Neal Boudette reports that the auto maker's financial situation improved dramatically as its sales rose and the company realized billions in cost savings from last year's bankruptcy reorganization.
However, the U.S. did share in GM's earnings, which totaled $1.66 per share. The company paid $203 million in dividends to the U.S. and Canadian governments and a union retiree health care trust, all of which are GM's preferred shareholders.
Several analysts had predicted GM would deliver a narrower profit and only break even in North America, where GM made $1.2 billion. One unexpected factor is that consumers were willing to pay more for GM vehicles. The higher prices contributed $1.7 billion in first-quarter revenue in North America despite the depressed auto market. U.S. sales rose 17% from 2009's first quarter.
"The biggest problems they've had for a long time is that they were effectively paying people to buy their vehicles" through incentives, said Deutsche Bank analyst Rod Lache. "This has tremendously positive implications in terms of what they can do."
GM has managed to drive up prices by building fewer vehicles and turning out cars and trucks more desirable to U.S. consumers, such as GM's revamped Chevrolet Equinox crossover, while tighter supply means the company's doesn't have to rely on deals to clear out inventory.
Another factor: In North America, GM's factories are operating at 84% of capacity, up from less than 40% a year ago. Underutilized factories are a major cost drain for auto makers.
The company, meantime, has increased global sales by 24% amid rapid growth in emerging markets, including China.
Cost reductions made possible by last year's bankruptcy were a major factor in GM's profit.
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The world's largest auto maker until a few years ago, GM shed thousands of jobs, shuttered factories and closed hundreds of U.S. dealers. It had $53 billion in debt going into bankruptcy but it now owes closer to $8 billion, according to the company. GM's interest expenses fell by $863 million.
Mr. Liddell said he sees no reason GM can't continue to make money, but warned that momentum in North America could be slowed by a sales slide or costly incentive war among auto makers.
He said GM likely won't be profitable in Europe until 2011, where the industry has been hit by an end of government "cash for clunkers" payments and the region's economic turmoil. The Chinese car market also is slowing.
Meantime, a number of factors that boosted GM's results won't be repeated in future quarters.
The car maker spent just 13% of its $6 billion capital budget in the first three months of 2010, meaning capital spending will increase in coming periods. The company also produced a larger-than-usual volume of high-margin trucks to replenish short supplies.
The results marked GM's first quarterly profit since it made $891 million in 2007's second quarter. The company lost more than $80 billion since 2005 and hasn't been profitable for a full year since 2004.
Last month, GM repaid a $6.7 billion U.S. government loan ahead of schedule, but it still faces the stigma of being a government-owned company.Just do it
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