By Chris Haak
General Motors Company has released its first quarter 2010 earnings report, and the news is actually pretty good for a change. Helped by massive restructuring, shuttered brands, lower incentive spending, and a generally-improved global auto market, GM reported net income of $865 million and an operating profit of $1.2 billion. The company lost $5.98 billion in the first quarter of 2009 as it stumbled into bankruptcy.
Global revenue spiked from old GM’s first quarter 2009, from $22.43 billion to $31.48 billion, a 40 percent increase, in spite of having four fewer brands in the US. The company’s operating income was offset by $203 million in stock dividends that the company had to pay to its owners – primarily meaning the US and Canadian governments and the union’s VEBA trust fund.
The numbers look pretty good for GM, but still pale in comparison to Ford’s $2.1 billion first-quarter net income. Ford, of course, did not enter bankruptcy protection a year ago as GM and Chrysler did, and is generally in far-better financial shape than either of the other Detroit-based automakers. But Ford is also saddled with some $35 billion in debt, while much of GM’s was washed away in bankruptcy. In fact, GM’s interest payments for the quarter were $863 million less than they were in the year-earlier period. Wipe away those interest savings – almost entirely thanks to bankruptcy – and GM would have had different news to report today.
GM’s new CFO, Chris Liddell addressed the company’s potential IPO – which is a question of “when,” and not “if” at this point as well. He declined to put a specific timeframe on the event, but said the company would do so only when the company and the market was ready for it. Liddell also cautioned against extrapolating first-quarter results through the rest of the year; the strength of the market recovery is an unknown at this point, and anything could happen. Too, as the economy recovers, raw material prices will likely continue to climb, which means more costly parts to make new cars and trucks, and continually-rising oil prices may crimp demand for GM’s high-margin trucks, crossovers, and SUVs.
Referring the GM’s propsects for the rest of the year, Liddell said that the company stood a “good chance” of turning a profit for 2010, which is more tempered than rival Ford’s “solidly profitable” prediction for 2010. He also pointed out that now that profitability has been reached, the next step is “sustained profitability.” GM followed up its 2007 Q2 profit with an earth-shattering $39 billion loss in Q3 (or a $1.6 billion loss excluding special items), and losses in every quarter since then.
The company and its leadership are saying the right things. Now they just have to execute.