Who said that the Japanese auto companies have a better idea? Why, look at what General Motors Corp. was able to do last year: In 1982, the giant American company rolled up net income of $963 million, or $3.09 a share, while its factory sales of cars and trucks dropped 8 percent from the year before.
As a matter of fact, GM actually lost $329 million in its worldwide car operations, rolling up a profit of $1.29 billion apart from auto production activities.
The sickness in the U.S. car business was actually worse than that. A leading New York analyst calculates that GM lost $1.8 billion in selling new American and Canadian vehicles last year, after dropping $1.6 billion in 1981 and a staggering $2.6 billion on new North American business in 1980. (It made up some of those losses in replacement parts.)
"Imagine how good GM profits could look if they didn't sell any cars at all!" said a New York car-market analyst, tongue in cheek.
GM's $1.29 billion income last year was composed mostly of a huge tax credit from Uncle Same ($252 million), gains from well-managed operations in the foreign currency markets ($348 million), and from its financing business through General Motos Acceptance Corp. ($688 million).
In the past three years, General Motors has suffered a steady decline in its car business -- but with an improvement each year in its profit picture. It went from a loss of $2.65 a share in 1980, when it sold 7.1 million cars and trucks, to a profit of $1.07 a share in 1981 when sales fell to 6.76 million units, to a profit of $3.09 a share last year when sales fell further to 6.24 million units.
Because GM has now cut its overhead so well, it probably can begin to break even on car sales with only a modest upturn in the economy. And if the recession ends, as GM Chairman Roger Smith and President F. James McDonald predict, it could have a good year.
The Wall Street consensus is that, if GM can push its North American sales from 4.6 million last year to 6.5 million this year, it could make $3 billion in 1983.
But you'd never know what a lousy year General Motors really had in 1982 by reading the company press release. "Despite lower sales, 1982 earnings represented an increase of $2.02 per share over 1981 results," the press release said smoothly. "The improved earnings were primarily attributable to noteworthy improvements in operating performance resulting from determined cost-control efforts, and increased income from GM's financing and insurance operations."
"Cost control" is a euphemism for a $2.2 billion slash in total payrolls (from $19.2 billion to $17 billion), cutting the number of employes by 105,000 (end of 1981 to end of 1982).
An annual report like this is part of the wonderful never-never land of American Big Business, acting hand in hand with a friendly government. For example, the net $252 million in tax credits from the U.S. government that GM claimed for 1982 represents primarily the improved investment tax credit, a Reaganomics feature. That was double a credit of $123 million in 1981.
The investment tax credit is supposed to increase business' incentive to boost capital expansion, improve productivity and create new jobs, right? That's essentially the philosophy of "supply-side economics" -- just give business the tools, and it will do the job.
But while the press release indulges in some back-patting about the corporation's "continuing capital spending programs," the detailed financial statement shows that GM's capital outlays last year were down sharply.
The official GM explanation is that a capital-expansion program is never smooth, and that the biggest bulge in these outlays came in 1981. But there is a suspiciion that, with last year's decline in oil prices, GM anticipates that car buyers will be looking once again to comfort and styling, and not exclusively to fuel efficiency.
That may be slowing GM's all-out effort to build small-car capacity. After all, the medium-sized and larger car always has been GM's bread and butter. In any event, the company's 1982 expenditures for "real estate, plants, and equipment" fell to $3.6 billion from $6.5 billion in 1981. And expenditures for special tools fell to $2.6 billion from $3.2 billion in 1981. The actual result, after cleaning away the press-release flackery: a drop of 36 percent in the total capital spending from $9.7 billion in 1981 to $6.2 billion in 1982.
As one result, GM had a nice pot of cash and marketable securities at the end of the year -- $3.1 billion compared with $1.3 billion at the end of 1982. So although it didn't make a nickel selling cars, the GM board voted to continue paying its 60-cent quarterly dividend to stockholders. That's nice for them. I wonder how laid-off GM workers view it.