Money Matters, Simplified.
GM back on the road to profitability
by Jamie Anderson - May 18, 2010 - comments
The U.S government infused $50 billion out of the TARP funds last year, failing which the company would have had to shut down. Till date, the automaker has repaid $6.7 billion of that aid.
End of the tortuous loss making journey for the General Motors (GM). Once termed as one of the Detroit’s Big Three along with Ford and Chrysler; GM bailed out last year by the U.S. government, finally jumped out of the red after reeling under recessionary conditions for nearly three years.
The first quarter of the year saw GM earn $865 million vis-à-vis a $6 billion loss in the comparative period last year.
Strategy worked
The company attributed the profit to strong new-model sales and higher revenue from growth in Asia and South America. The cost cutting measures that it incorporated helped the cause.
"In summary, it was an extremely good first quarter for General Motors," said Chris Liddell, GM vice chairman and chief financial officer.
"Posting a profit and generating positive cash flows are important steps as we work to rebuild General Motors," averred Liddell.
GM's profit, helped by a recovering economy, is indicative of the fact that the turnaround business plan that was crafted to enable the besieged automaker emerge from bankruptcy has worked.
As a strategy, the Michigan based company had decided to work with a leaner corporation. The company downsized and shed jobs. It also dropped major brands such as Pontiac, Hummer and Saturn from its repertoire.
The company reported $35.7 billion in cash at the end of the quarter and is said to have paid $203 million in dividends to its preferred stockholders, the U.S. and Canadian governments and a United Auto Workers union retiree health care trust.
GM has lost over $86 billion since 2005. Since then, the profitable quarters have been few and far between. The last time GM made a quarterly profit was the second quarter of 2007. It had earned $891 million in that quarter.
Market share slides
The news of being back in the black will be taken with a pinch of salt by the company. The company's U.S. market share slid from 18.6 percent to 18.1 percent in the fourth quarter of last year.
Liddell terms the lower prices, offered by Toyota to negative the adverse repercussions of its safety recalls, as the reason for a drop in share.
The fall in share "was the result of aggressive Toyota incentives that we didn't match," claims the chief financial officer.
Liddell was circumspect of the rest of the year as the first-quarter production is, more often than not, higher than other quarters, as automakers brace up for the spring selling season.
"I'd still be reasonably cautious about the rest of the year," he said.
GM has lost over $86 billion since 2005. Since then, the profitable quarters have been few and far between. The last time GM made a quarterly profit was the second quarter of 2007. It had earned $891 million in that quarter.