November 10, 2010
G.M., Days Away From Stock Offering, Posts $2 Billion Profit
By NICK BUNKLEY
DETROIT — A week before its initial public offering, General Motors reported its largest quarterly profit in 11 years on Wednesday, showing that the slimmed-down automaker no longer needed huge sales to generate significant earnings.
G.M. said it earned $2 billion in the third quarter, nearly equaling its profit for the first half of 2010. G.M. earned $4.2 billion from January through September.
The company said it expected to report a fourth-quarter profit, at least before accounting for interest and taxes, though “at a significantly lower run rate than each of the first three quarters,” and a full-year profit for the first time since 2004.
“As demonstrated by our third consecutive quarter of profitability and positive cash flow, these results continue our significant progress,” G.M.’s chief financial officer, Christopher P. Liddell, said in a statement.
The profit was equal to $1.20 a share, after a three-for-one stock split. There is no meaningful year-ago profit comparison because the company emerged from bankruptcy in the third quarter of 2009.
Revenue increased 27 percent from the third quarter last year, to $34.1 billion.
G.M. earned $2.1 billion in North America, the region that had been responsible for most of its losses in recent years. It lost $559 million in Europe. It had $33.5 billion in cash and marketable securities as of Sept. 30, up from $31.5 billion as of June 30.
“We know we have much more work to do,” G.M.’s chief executive, Daniel F. Akerson, said in a conference call with analysts and reporters. “We still need to fix Europe. We continue to be vigilant in reducing costs in the enterprise, and we have just started doing a better job marketing our brands to consumers.”
Company executives have been traveling this week to meet with potential investors to convince them that the new G.M., formed by discarding burdensome assets in bankruptcy protection last year, is positioned to consistently generate a profit.
G.M. can earn about $11 billion to $13 billion a year under normal market conditions and as much as $19 billion in boom times, Mr. Liddell said in a video created for would-be investors and posted online.
Three years ago, G.M. needed to sell nearly four million vehicles a year in the United States to break even, but today, it can be profitable at roughly half that sales volume, Mr. Liddell said in the video. Hourly labor costs have been cut by more than two-thirds, to $5 billion, from $16 billion in 2005, he said.
Through October, G.M. was on pace to sell about 2.2 million vehicles this year in the United States, about half as many as it did in 2005, when it lost $10.6 billion.
It shed four of its eight domestic brands, shutting down Pontiac, Saturn and Hummer, and selling Saab to a Dutch company, Spyker Cars. Over all, G.M.’s sales are up 6.6 percent this year, but sales by the brands that are still offered, Chevrolet, Buick, Cadillac and GMC, are up 22.1 percent.
New models, including redesigned versions of the Buick LaCrosse sedan and Chevrolet Equinox crossover vehicle, have been well received by critics and consumers, to the point that G.M. has struggled to keep up with demand. Early sales of a critical new small car, the Chevrolet Cruze, have been brisk, and G.M. is about a month away from introducing the Chevrolet Volt, a plug-in hybrid car that it says represents the company’s future direction.
G.M.’s public stock offering, expected to occur Nov. 18 and be worth at least $10.6 billion, will allow the federal government to begin recouping the bulk of its $49.5 billion investment in the automaker. The government plans initially to sell about a third of its 61 percent stake in G.M., in the hope that it can divest the remaining portion as the shares’ value increases.
The automaker said last week that shares would be priced from $26 to $29, after a three-for-one split. Other G.M. stakeholders, including a trust that pays health care costs for union retirees, plan to participate in the offering.
Ultimately, the government needs to sell its shares for an average of about $44 to break even. The Treasury Department already has recovered $7.4 billion from G.M., including interest and dividends, and is slated to get a $2.1 billion more after the offering, from a deal in which G.M. has agreed to repurchase preferred shares held by the Treasury.
Separately, G.M. confirmed in a filing to the Securities and Exchange Commission that it had removed one of the underwriters for its public offering, because an employee of the bank distributed an “unauthorized e-mail” containing information about the offering. G.M. did not identify the bank, but UBS is no longer listed as an underwriter on G.M.’s amended registration forms. G.M. said that the e-mail might violate S.E.C. rules, but that nonetheless, “We do not believe that we will be subject to any material liability.”
G.M.’s third-quarter profit surpasses the $1.7 billion earned in the same period by the Ford Motor Company, the only Detroit automaker to avoid bankruptcy. Ford has earned $6.3 billion so far this year.
Chrysler, which filed for bankruptcy protection a month sooner than G.M. and is 8 percent owned by the federal government, said on Monday that that it lost $84 million in the third quarter but posted a third consecutive operating profit. Chrysler expects to have a public stock offering in late 2011.
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