Global Biz
GM roars back to profit, but can it repay?
(Agencies)
Updated: 2010-05-19 11:51
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 General Motors Chairman and CEO Ed Whitacre stands with Fairfax Kansas Plant workers and a Chevy Volt as he makes an announcement at the GM plant near Kansas City, Kansas, April 21, 2010. [Agencies] |
DETROIT - In less than a year, General Motors Co. has roared back from bankruptcy to a quarterly profit. Now comes the hard part: Sustaining the income and repaying billions of dollars in government aid.
There are signs that GM is on track to do just that. Revenue is up 40 percent over the first quarter of last year. US sales rose 17 percent for the quarter, and the automaker made an operating profit in North America, which had been a cash incinerator. Units in Asia and Latin America posted strong numbers, too.
As a result, the automaker announced Monday, its net income rose to $865 million, a dramatic reversal from the $6 billion the company lost in the same period last year.
To keep GM afloat and get it through bankruptcy court, the US government gave the company $50 billion. GM repaid $6.7 billion that the government considered loans, with the remaining $43.3 billion converted to a 61 percent stake in the automaker.
For the Treasury to break even, GM will have to make a lot more money and show prospects for even more profits in the future for its shares to be worth enough to cover the debt.
Still, the first-quarter profit was viewed with hope because, since GM's stay in bankruptcy court, the company has cut expenses, is making better cars and now has a shot at repaying taxpayers.
Some experts were skeptical. James Schrager, professor at the University of Chicago Graduate School of Business, said GM has a history of making boastful claims, only to disappoint. A recent television ad in which CEO Ed Whitacre declared that the company had repaid its government loans in full, with interest, was misleading, he said.
"I'm delighted that they're not losing buckets of money, but a modest profit is a long way away from righting the ship," Schrager said.
Chris Liddell, GM's chief financial officer who was hired recently from Microsoft Corp., would not say Monday when an initial public offering might take place, but he was cautiously optimistic that GM would have a profitable year.
And even Liddell conceded there are still obstacles to the sale, such as losses in Europe, a possible slowdown in US sales, and reduced growth in China, which was GM's biggest market in the quarter in terms of cars and trucks sold.
"Certainly over the next year, there's a possibility we could do an IPO, but the market's got to be ready, the automobile industry has to continue to improve, and we have to continue to improve," Liddell said.
US auto sales have gradually picked up, rising 15.5 percent last quarter from the depths of the recession a year ago.
GM's US rivals also have shown improvement.Chrysler Group LLC, which also went into bankruptcy protection last year before being taken over by Fiat Group SpA, lost $197 million in the first quarter. That's far better than the $3.8 billion it lost between June 10, when it emerged from bankruptcy protection, and December 31.
And Ford Motor Co. earned $2.1 billion in the first quarter, its fourth straight positive result.
