G.M. Posts Its First Profit in 3 Years as Sales Rise 40 Percent

G.M. Posts Its First Profit in 3 Years as Sales Rise 40 Percent
By NICK BUNKLEY
Copyright by The New York Times
Published: May 17, 2010
http://www.nytimes.com/2010/05/18/business/18auto.html?hp


DETROIT — General Motors said Monday it earned $865 million in the first quarter, its first profit since 2007, after last year’s government-sponsored bankruptcy allowed the carmaker to wipe away many of its longstanding burdens.

G.M. said revenue was up 40 percent, to $31.5 billion, and it had positive cash flow of $1 billion.

The results show that G.M. is on track to become a public company again as soon as the fourth quarter, allowing the government to recover more of the billions of dollars it spent preventing G.M.’s collapse.

The company earned $1.2 billion before interest and taxes in North America, the region where G.M. had sustained most of its losses in recent years. In the fourth quarter, G.M. lost $3.4 billion in North America.

Worldwide, G.M. earned $1.7 billion before interest and taxes.

European operations lost $500 million.

“We’re pleased with our first quarter performance, in particular achieving profitability,” Christopher P. Liddell, the chief financial officer, said in a statement. “In North America we are adding production to keep up with strong demand for new products in our four brands. We’re also steadily growing in emerging markets, keeping our costs under control, generating positive cash flow and maintaining a strong balance sheet.”

“These are all important steps as we lay the foundation for a successful G.M.” he said.

The overall profit for the first quarter compares with a loss of $6 billion by the old G.M. a year earlier.

The news comes several weeks after G.M. repaid the balance of its $8.2 billion loans from the American and Canadian governments. G.M. aired commercials featuring its chief executive, Edward E. Whitacre Jr., highlighting the loan repayment, but critics, including some members of Congress, accused the company of misleading consumers into thinking all $50 billion given to the company had been repaid.

The Treasury Department still owns 61 percent of G.M., a stake it received in exchange for most of the money it gave to the carmaker. Taxpayers can recoup that money only through the sale of that stock.

G.M. intends to have a public stock offering as soon as the fourth quarter of this year. Federal officials now project the Treasury will recover most of the money given to G.M. and argue that any loss that results was less costly than the damage that a collapse of the company would have inflicted on the country’s economy.

In preparation for that action, executives are considering reentering the auto financing business, a move that could increase sales by expanding the pool of consumers who can qualify for attractive loans. G.M. sold control of its former financing arm, G.M.A.C. Financial Services, in 2006. G.M.A.C. is now known as Ally Financial and also handles financing for Chrysler.

G.M. has been able to improve its performance even as industry sales remain weak largely because it shed a significant amount of its debt during the six weeks it spent in bankruptcy protection starting in June 2009.

From July to December, G.M. lost $4.3 billion, mostly because of the cost of settling with the United Automobile Workers union over retiree health benefits, but it had positive cash flow of $1 billion. Prior to bankruptcy, G.M. was rapidly depleting its cash reserves and could have run out of money within months had the government not stepped in.

Likewise, Chrysler, which filed for Chapter 11 protection a month sooner than G.M., is showing early signs of revival. Chrysler lost $197 million in the first quarter, though it was profitable on an operating basis. Company officials said last week that the recovery is progressing faster than they had forecast and projected an operating profit for the full year, as well.

G.M. and Chrysler “have been given the unique opportunity to start over and they’re seizing it with both hands,” Ron Bloom, an adviser to President Obama who guided the administration’s auto industry task force, said during a speech in Michigan last week.

Meanwhile, the Ford Motor Company, which managed to avoid bankruptcy, recently reported a first-quarter profit of $2.1 billion.