GM Makes Money At Last, But Rest Of Year Looks Tough

GM Europe Improves But Breakeven Target Looks A Stretch

General Motors of the U.S. made money for the first time in a long time in the first quarter, but the company, emerging from bankruptcy, said any talk of an early return to private ownership is premature.

Investors were impressed, even though a closer look at the numbers showed GM benefitted from the combination of a number of one-off factors, including, according to Deutsche Bank, a 65,000 inventory build and an unsustainably high, rich production mix.

“This does not diminish the fact that GM would have still generated a profit in the quarter (despite unusual items) a significant achievement in light of the 11 million annual sales rate. Importantly, higher pricing continues to be one of the largest drivers of GM’s earnings improvement,” said Deutsche Bank.

GM’s first quarter net profit was $865 million and its operating profit was $1.2 billion. In the same period of 2009, GM lost $6 billion, as it slid towards the bankruptcy abyss.

GM officials said the rest of 2010 would be more difficult, and played down the notion that a public share offering was imminent to return the company from government ownership. The U.S. government owns 61 per cent of the company.

GM Europe, still negotiating a restructuring plan with European governments, performed better in the first quarter, losing $500 million before interest and taxes. This was a $300 million improvement on the fourth quarter of 2009.

Much To Be Done
Deutsche Bank thinks there is much work to be done if GM Europe is to fulfil its 2011 breakeven target.

“The bottom line is that GME still appears to be running at a $1.2-1.5 billion annualised loss rate. GM Europe has announced plans to reduce labour costs by $300 million. Clearly, additional costs reduction, price/mix improvement, and/or higher volumes will be needed to achieve the company’s goal of breaking even in 2011,” Deutsche Bank said.