The third-quarter net profit mostly came from a $2.1 billion gain in North America, up from $1.6 billion in the second quarter and $1.2 billion in the first quarter.
CEO Dan Akerson reiterated the company’s expectation to post its first full-year profit since 2004, but warned that fourth-quarter earnings will be significantly lower than each of the first three quarters this year.
“We know we have much more work to do,” Akerson said. “We still need to fix Europe. We continue to be vigilant in reducing costs in the enterprise, and we have just started doing a better job marketing our brands to consumers.”
Through its quarterly earnings, GM’s third in a row, the company is seeking to convince investors it has eliminated the problems that led to four straight annual losses totaling $82 billion before its 2009 bankruptcy. GM restructured on $50 billion in federal aid, and the stock sale will allow taxpayers to start recouping the $40 billion that was converted into a 61% stake in GM.
GM’s international region, which includes hot Asian markets, posted a $646 million profit, which is down from $672 in the second quarter and $1.2 billion in the first quarter. The company’s problematic Europe region deepened its losses to $559 million, compared with $160 million in the second quarter.
The $2 billion in earnings nearly matches GM’s profit from the first half of the year. It also nearly matches the $2.1 billion quarterly profit Ford has averaged so far this year. Ford gained $6.4 billion in through September, compared with GM’s $4.2 billion. GM posted profits of $865 million in the first quarter and $1.3 billion in the second. GM’s worldwide market share slipped to 11.5% from 11.8% a year earlier. That’s mostly due to a one-point market share loss in North America, where GM has sold or wound down four of its eight brands. Worldwide sales increased to 2.1 million from 2 million a year earlier.
Overall, GM’s operations generated $2.6 billion in cash. After capital expenditures of $1.2 billion, free cash flow was $1.4 billion.
The automaker said its worldwide employment has fallen to 209,000 from 215,000 at the end of 2009. That’s mostly due to restructuring in Europe and the sale of Saab and GM’s India operations. U.S. salaried employment remained at 26,000 from year-end 2009 levels, and the number of U.S. hourly employees grew to 53,000 from 51,000.
Chief Financial Officer Chris Liddell reiterated an earlier warning that GM’s fourth-quarter earnings before interest and taxes would take a hit due to a different production mix, the cost of launching new vehicles such as the Chevrolet Cruze and Volt, and higher engineering expenses for future products. Capital expenditures are accelerating in the fourth quarter, he said. GM expects full-year capital expenditures of about $5 billion, up from $3.1 billion through September.
Rebecca Lindland, an analyst with IHS Automotive, said the extra fourth-quarter expenses seemed reasonable.
“I would hope that people are taking a long-term view of the situation and that they understand and account for the cycles of expenses, especially launching a vehicle like a Volt and the Cruze,” she said. “These are truly vehicles of their future.”
In addition, GM will incur a $700 million non-cash charge in the fourth quarter related to its planned purchase of $2.1 billion of Series A preferred stock currently held by the U.S. Treasury. That won’t affect the fourth-quarter earnings before interest and taxes, Liddell said, but it will drag down net profits.
GM has said annual profits will continue. Liddell said last week in an online investor video GM will be able to make $11 billion to $13 billion before interest and taxes in a moderate sales year and $17 billion to $19 billion when sales are at their peak.
That’s largely because GM’s bankruptcy restructuring lowered its break-even from at least 15.5 million in U.S. sales to sales of 10.5 million to 11 million vehicles, Liddell said last week. U.S. light-vehicle sales totaled 10.4 million in 2009 but were often in the 16 million range before the recession.
In the initial public offering next week, the U.S. Treasury is selling about a third of its 61% equity stake in GM at a loss. The government is hoping the stock’s value rises enough in the future to allow taxpayers to break even on the total investment when it sells the rest of its shares.
M.C.L Comment: Remember folks if the Republicans had their way, GM would be dead right now. So remember that in two years.
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