GM swings to first quarterly profit in years
Tuesday, May 18, 2010
General Motors on Monday reported its first quarterly profit in nearly three years, as the automaker rescued last year by the U.S. government gained strength with the recovering economy.
The company, which shed billions of dollars in debt in a bankruptcy last year, earned $865 million in the first quarter, compared with a $6 billion loss in the year-ago period.
"In summary, it was an extremely good first quarter for General Motors," Chris Liddell, GM vice chairman and chief financial officer, said in a call with reporters and industry analysts. "Posting a profit and generating positive cash flows are important steps as we work to rebuild General Motors."
Also Monday, the Obama administration said it plans to spend $800 million to help redevelop about 90 closed GM plants in 14 states into other business uses.
The United States has invested $50 billion in General Motors, and a substantial return on that investment depends on the revamped company making a profit.
The automaker has repaid $6.7 billion in loans. But the vast majority of the U.S. investment cannot be returned until the company goes public and the government sells its equity share. Whether the United States can fully recover its investment depends upon the stock price.
GM's profit for the first quarter is in part a validation of the business plan crafted so that it could emerge from bankruptcy a leaner corporation. One of the main goals was to downsize so that GM could make a profit even if U.S. auto sales remain depressed by the economic downturn. The company slashed payrolls and shed major brands such as Pontiac, Hummer and Saturn.
Although the company has turned a profit, it has yet to fully turn around.
Global sales for the first quarter rose to $31.5 billion, from $22.4 billion during the year-ago period.
But it is not clear whether GM is outpacing its competition. The company's U.S. market share slipped to 18.1 percent from 18.6 percent in the fourth quarter.
Liddell attributed the drop in market share to the lower prices Toyota put in place after the negative publicity about its safety recalls.
Some of the drop in market share "was the result of aggressive Toyota incentives that we didn't match," Liddell said in an interview.