GM Details 1Q 2010 Profit, IPO Still in Distant Future

Former General Motors CEO Fritz Henderson had a vision: By paring its brands to four, and eliminating a number of employees and creditors, the auto giant could possibly manage to break even, even if it had only 18 percent of a U.S. market that consisted of 10 million units sold annually.

Fritz may be gone, but his vision rang somewhat true. New GM managed to post a profit in its second post-bankruptcy quarter, and if light vehicle sales for the remainder of 2010 follow the first quarter, the automaker will sell roughly 11.2 million vehicles in the entire year.
“We would have broken even somewhere between 10 million and 11 million units,” says Chris Liddell, GM’s vice chairman and chief financial officer. “To my mind, that’s probably equal to what was said a year ago…probably slightly better.”
The profit — $865 million on a net income of $1.068 billion — is slim, but it is the first the General has seen since 2007. The $203-million difference went to preferred shareholders in the form of cumulative dividends. The company earned $1.2 billion before interest and taxes, compared to a $3.4-billion loss in the fourth quarter of 2009, and a $1.4-billion loss from July 10 (the day it emerged from bankruptcy) through September 30, 2009.
Still, we’d hold off on calling your broker — an initial public offering (IPO) for New GM is still a ways away. A single quarter of profit isn’t enough for the company to establish a time frame for its IPO, which could free it from the 60.8-percent stake the U.S. government holds. Early this morning, however, Bloomberg reported the U.S. Treasury is speaking with several investment banks about advising the department on issuing an IPO for GM.
“I wouldn’t take too much [from] that,” Liddell said, adding that’s exactly what he’d expect Treasury to do at this point in GM’s rebirth. Liddell acknowledged an IPO could come by the end of the year or in 2011, but an IPO depends on both the company’s market value and the health of the equity market.
For the time being, GM, at least, seems healthy. Global deliveries totaled 1.998 million in Q1, approximately 46,000 vehicles more than last quarter, and 26,000 more than the third quarter of 2009. Market share, however, dropped slightly from the 11.8 percent stake GM held in 2010 to 11.2 percent. GM says this is largely from dropping four brands, but its “four core” brands also witnessed a slight decrease as well.
On the plus side, GM’s North American operations are no longer hemorrhaging cash. GM Europe was the only region where the company lost money, although its market share rose from 8.2 percent in the fourth quarter of 2009 to 8.5 percent.
Better yet, GM’s average transaction prices are up while incentive spending is down. Retail incentives totaled nearly $5500 per vehicles in February 2009, 152 percent of the industry average. In March, that figure fell to about $2800 (98 percent), and is currently around $3000 per vehicle (108 percent), according to J.D. Power and Associates’ Power Information Network.
Although the results seem positive — and Liddell does note he expects GM to remain profitable in 2010 — GM’s CFO is well aware there are still several hurdles ahead, including that IPO.
“I’d still be reasonable cautious about the rest of the year,” Liddell said.


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