Print

Mail

wiki links

Profit indicates GM may have turned corner

General Motors (GM) appears to have turned a corner with its first quarterly profit in nearly two years but still faces a rocky road back to long-term profitability, analysts said.

GM on Wednesday posted a net profit of US$950 million in the fourth quarter after a massive cost-cutting and reorganization effort. Excluding one-time items, the profit amounted to US$180 million.

David Cole, head of the Center for Automotive Research in Ann Arbor, Michigan, said the turnaround appears to be picking up momentum for GM.

"They're making real progress but the game isn't over," Cole said. "But it's still a pretty significant turnaround."

Greg Gardner of Harbour Consulting also said results for the fourth quarter indicate the company cost-cutting efforts, including the buyout of thousands of workers, are beginning to pay dividends.

"They won't see major traction from the buyouts until the 2007 results come in," Gardner said, who noted more than 34,000 GM workers had agreed to early retirements and buyouts last year.

Gardner added GM is moving closer to its goal of reducing structural costs to 25 percent of revenue. The production of new GM products, such as its pickup truck and cross over vehicles, went very smoothly, he said.

Fritz Henderson, GM's chief financial officer, said the sharp improvement in GM finances after a US$10.4 billion loss last year reflects a turnaround not only in North America but elsewhere in the world.

The Asia-Pacific region "remains the core of GM's global growth strategy," Henderson said.

GM's automotive business in Asia Pacific posted strong results as revenue jumped 30 percent to US$15 billion last year even though profits slipped 20 percent due to GM's sale of its stake in the Japanese automaker Suzuki, Henderson said.

Record sales last year of GM Daewoo products contributed to GM's continued strong performance in the region, headlined by sales gains of 32 percent in China and 19 percent in South Korea.

Henderson also said GM plans to increase its global capital spending from US$7.5 billion last year, to between US$8.5 and US$9 billion this year and next year.

A substantial portion of the investment will be in new power trains, he added.

Henderson added that GM North America recorded its fourth consecutive quarter of more than US$1 billion in adjusted earnings.

Ironically, GM results took a hit from its GMAC finance arm, which had helped the auto giant weather its more difficult times.

Specifically, GM is paying a heavy price for getting into the mortgage business, especially the "subprime" loans to people with patchy credit histories that are now facing high default rates.

GM, which sold a 51 percent stake in GMAC last year, said it will have to transfer US$1 billion to the private equity group that now controls GMAC to cover the decline in subprime mortgages on the finance company's books.
This story has been viewed 1384 times.