General Motors' First Quarter Points to a Better Road Ahead

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General Motors' Chevy MalibuTo say it's been a rough few years for General Motors would be an understatement. But less than a year after exiting a controversial bankruptcy, the automaker on Monday reported its first quarterly profit since 2007. In doing so, GM furthered anticipation that the Detroit-based company may finally be on a path to sustained profitability, an especially welcome turnaround after 2009's disastrous sales.

GM said it earned $1.2 billion before interest and taxes in North America, the region where it sustained most of its losses in recent years. For instance, in the fourth quarter, GM said it lost $3.4 billion in North America. First-quarter revenues reached $19.3 billion in North America. Worldwide, GM earned $1.7 billion before interest and taxes and had revenues of $31.5 billion, a 40% improvement over last year.

"You have to keep remembering that they quit selling half their brands, so they're making more money with fewer brands," says auto analyst Arthur Wheaton of Cornell University. "That bodes well for the future for them."

Europe Is the Problem

Still, Chief Financial Officer Chris Liddell remained cautious in his comments to analysts during a conference call Monday afternoon, warning that the auto business remains cyclical. Compared to other quarters, production is typically higher in the first three months of the years in anticipation of the spring selling season, he said. "But there's no reason to say we shouldn't be pushing for profitability in North America on a consistent and sustained basis." Added Liddell: "That's clearly our objective."

Europe is another matter. With sales hampered by concern about continued economic recovery and the recent bailout of debt-ridden Greece, challenges to profitability remain greater there, Liddell said. While sales are up by double digits in North America -- and have risen as much as 70% in Brazil and China -- the European car market overall is flat to single-digits up over last year's levels.

The first step in GM's European restructuring is to achieve "break-even levels," Liddell said, something the company hopes to achieve next year. The plan in large part calls for cuts in costs -- rather than significant increases in sales -- to reduce losses. "There is still clearly a lot of work to be done, still a lot of negotiations going on in Europe," he said.

Is an IPO Coming Soon?

Liddell also sought to tamp down expectations that GM would pursue an initial public offering sooner rather than later. "I'm in the unusual position of probably just trying to keep expectations low on this topic, [and instead] keep them focused on making money and selling cars."

An IPO will happen when both the company and the market are ready, he said. Many variables are in play, not the least of which is the current volatility in equity markets. Stocks worldwide have taken back much of this year's sizable gains made on concern over Europe's debt problems.

Responding to weekend news reports that suggested Treasury is talking with talking with several banks about an IPO, Liddell said people "shouldn't take too much from that." The department holds a 61% stake in GM. Still, Liddell didn't rule out that an initial sale of stock could happen later this year. "That's a possibility," he said.

But Cornell's Wheaton expects an IPO will indeed happen sooner rather than later -- likely in September or October just ahead of November's midterm elections. "[GM] really needs to help out the politicians who bailed them out," he says. "I think it will happen, and I think it will happen directly as a result of the elections coming up."
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