Cost-cutting, along with new models like this 2010 Chevrolet Equinox, helped GM deliver a strong first-quarter profit.
You may not be able to cost-cut your way to success, but it certainly helped General Motors during the first quarter of 2010, the long-troubled maker delivering a net profit of $865 million on $31.5 billion in revenues.
Though currently a privately-held company, with the U.S. Treasury holding a 61% stake, GM reports that would have worked out to $1.66 a share, a sharp turnaround from just one year ago. In the first three months of 2009, a period during which the U.S. auto industry melted down and the automaker started preparing for bankruptcy, GM reported a $6 billion loss, or $9.78 a share.
“We’re pleased with our first-quarter performance, particularly in achieving profitability,” said Chris Liddell, GM’s new Chief Financial Officer. He pointed to the success of new models — such as the Chevrolet Equinox — as well as cost control, improved sales in emerging markets and improved cash flow as “important steps as we lay the foundation for a successful GM.”
On an operating basis, the latest quarter saw GM come through with $1.2 billion in profits, or an EBIT (Earnings Before Interest and Taxes) of $1.7 billion. The latter number reflects the impact of the sale of the U.S. maker’s Swedish subsidiary, Saab, which was purchased by the Dutch-based sports car manufacturer, Spyker.
The success of new products, such as the Equinox, is particularly critical, industry analysts stress, in light of GM’s decision to cut back from eight North American divisions to just four following its emergence from bankrupty, last July. Along with the sale of Saab, the maker is quickly phasing out its Pontiac, Saturn and Hummer brands.
Notably North American operations delivered a $1.2 billion profit on an EBIT basis, a sharp reversal of $3.4 billion loss from the core operations during the fourth quarter of 2009. Meanwhile, GM’s European operations narrowed losses by $300 million, from the fourth quarter, to $500 million.
The bottom line, $865 million profit suggests that GM may be able to deliver on Chief Executive Officer Ed Whitacre’s promise of a profitable 2010, said several industry observers. For his part, Joe Phillippi, of AutoTrends Consulting, said, “This is certainly impressive considering the company’s severe problems. It’s a sign things are turning around,” he added, calling the numbers “clean,” with no sign that they were boosted by accounting gimmickry.
The first-quarter profit certainly help lay the foundation for the planned GM Initial Public Offering, or IPO. Whitacre has been cautious about the timing, though the White House has reportedly been pushing to take GM public again this year. But analyst Phillippi believes the maker is right in waiting to announce the IPO “until they have (at least) a couple more quarters of positive numbers.”
Whitacre recently took to the airwaves to announce that General Motors had paid back the loan portion of its government bailout. But the widely-aired TV spots have been roundly criticized as misleading since te maker used some of the cash horde built up with the government aid to pay down the loan. The Detroit carmaker ended the first quarter with $35.7 billion in cash and marketable securities.