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GM's profit in 2010 highlights big turnaround

General Motors says it earned $4.7 billion last year, its first annual profit in six years. But analysts say the automaker's momentum may be difficult to maintain.

February 25, 2011|By Jerry Hirsch, Los Angeles Times
  • GMs vehicle sales increased 30% in 2010. Above, new cars at a dealership in Dearborn, Mich.
GMs vehicle sales increased 30% in 2010. Above, new cars at a dealership… (Bill Pugliano, Getty Images )

General Motors Co. posted a dramatic turnaround in 2010, earning an annual profit for the first time in six years as it recovered from bankruptcy and the recession.

But Thursday's report also provided a sobering prospect for the nation's largest automaker. Its fourth-quarter profit was less robust than what some analysts had expected, and they warned that future gains may be harder to achieve with GM nearing the end of a period in which new-car introductions bolstered sales.

"Now the realities of a slow recovery for the broad global economy and formidable new competition are slowing GM's sales and earnings, while the company also must deal with a relative paucity of new product launches in 2011," said Bill Visnic, an analyst with auto information company Edmunds.com.

The recent jump in gasoline prices could also present problems for GM because it could shift the mix of vehicles sold from high-margin trucks and sport-utility vehicles to less-profitable small cars, said Robert Schulz, an analyst with Standard & Poor's Ratings Services.

And GM could be losing the initial boost that came with its recovery from bankruptcy and the recession.

The smaller profit in the fourth quarter compared with previous quarters in the fiscal year "indicate the low-hanging fruit may have been picked," Visnic said.

GM swung to a quarterly profit of $510 million, or 31 cents a share, compared with a loss of $3.5 billion in the same period a year earlier. But fourth-quarter earnings were down sharply from $2 billion in the third quarter.

The fourth-quarter results represented "somewhat of a mixed bag," with the cost of new-vehicle launches cutting into profit, said Brian Johnson, an analyst at Barclays Capital.

The automaker's shares fell $1.57, or 4.5%, to $33.02, just above the company's initial public stock offering of $33 a share in November.

Still, analysts said there was no denying that GM had staged a remarkable turnaround from the 2005-to-2009 period, during which it lost $100 billion.

For the year, GM earned $4.7 billion, compared with a loss of $21 billion a year earlier.

"Last year was one of foundation building," said Dan Akerson, GM's chief executive. "Particularly pleasing was that we demonstrated GM's ability to achieve sustainable profitability near the bottom of the U.S. industry cycle, with four consecutive profitable quarters."

One result of its financial turnaround is a big payout to employees. Approximately 45,000 union workers are receiving bonuses of $4,300.

GM is rebounding with the economy. Annual sales increased almost 30% to $135.6 billion from $104.6 billion in 2009.

But its profit was also made possible by a 2009 bankruptcy and a government bailout. The restructuring allowed GM to slash debt, cut employment, reduce health expenses, rewrite union contracts, winnow out surplus factories and trim the cost of building a vehicle by several thousand dollars.

The restructuring left U.S. taxpayers as the automaker's biggest shareholder. The federal government still owns a 27% stake of GM, when all of the outstanding options for shares held by various parties are included. Canada owns 7%.

GM has repaid $22.7 billion of the $49.9 billion in government aid it received. The repayments include $13.5 billion in proceeds from the automaker's IPO.

"This is a good start," Akerson said. "There is a lot more work to do; 2010 was clearly a good year for General Motors."

The Detroit automaker has benefited from a slew of recent hot-selling new models in the U.S., including the Chevrolet Cruze, the Buick LaCrosse and the Cadillac SRX SUV.

"While GM still has some work to do in terms of improving their product lineup, the current offer of GM vehicles is the most balanced and highest quality they have ever had," said Jesse Toprak, an analyst at TrueCar.com.

Last year, Chevrolet outsold the Toyota brand for the first time since 2007. The American brand sold almost 1.6 million vehicles in 2010, compared with 1.5 million for Toyota.

GM was also helped by its newfound ability to spend less on sales incentives and to exact higher prices for its vehicles.

The company's average transaction price in 2010 was $34,149, a 7% increase from 2009, according to TrueCar.com. Meanwhile, what it spent on incentives fell more than 5% to an average of $3,397 per vehicle. GM outperformed the industry average when it came to increasing transaction prices and lowering its incentive spending, Toprak said.

The automaker's overseas operations also are turning out profits.

GM sold more cars and trucks in China than it did in the U.S. last year, marking the first time in its 102-year history that a foreign market has outpaced the automaker's domestic sales.

Vehicle sales in China rose nearly 29% last year to 2.4 million, GM said. U.S. sales increased just 6% to 2.2 million, partly because of the slow economy and GM's closure or sale of the Saturn, Pontiac, Hummer and Saab brands as part of its financial restructuring.

GM is well situated to keep growing and could catch Toyota to once again become the world's largest auto company, analysts said. Overall, GM's global sales increased 12.2% to 8.39 million vehicles last year. Global sales for Toyota rose 8% to 8.42 million.

On a regional basis, GM had an operating profit of $800 million in North America in the fourth quarter compared with a loss of $3.4 billion a year earlier. North American operations generated a $5.7-billion operating profit in 2010.

jerry.hirsch@latimes.com

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