Accounting Change Gives GM Profit of $812 Million
General Motors Corp. said Tuesday that its third-quarter net profit rose to $812 million from $345 million a year ago, but only after an $894-million accounting change and tax credits offset a huge pretax operating loss.
GM, amid a $10-billion cost-cutting drive to rebuild its profits after a steep decline in its U.S. car and truck business, cited the positive effects of liberalizing its procedure for writing off plants and equipment.
Without the accounting change, retroactive to January and concentrated in the third quarter, analysts said GM would have reported a pretax operating loss of $537 million, much higher than the comparable $252-million operating loss last year.
The world’s biggest corporation also reported that its global car and truck sales in the period fell 10% to 1.64 million, with the United States more than accounting for the volume drop.
Revenue eased to $22.6 billion from $22.8 billion last year, while earnings per share totaled $2.28, compared to 80 cents last year. But the accounting change boosted the earnings by $1.82 a share.
GM said it changed its accounting method for writing off investments in plant and equipment to reflect current industry standards for longer actual usage rather than its previous highly conservative procedure for speeding up depreciation and amortization charges. The company’s cash flow is unaffected.
“You almost need to be a scientist to figure out this earnings report,” said Jack Kirnan, auto analyst for the Wall Street firm Kidder, Peabody & Co. “But what this says to me is that GM’s underlying profitability for the car and truck business in North America is still deteriorating.”
GM on Monday reported profits of $325 million from its General Motors Acceptance Corp. financing subsidiary and about $250 million from its GM Hughes Electronics and Electronic Data Systems subsidiaries, whose earnings are included with the auto business. The company also took a $179.5-million tax credit for the third quarter.
In view of such profits from non-automotive businesses and the accounting change, “the loss from their auto manufacturing business is massive,” said Michael Luckey, an analyst for Shearson Lehman Bros. in New York.
More Savings Anticipated
But Charles Brady, auto analyst for Oppenheimer and Co., said he detects a slow trend of improvement in cutting costs, which may show up better in the first half of 1988.
“All eyes will be focused on their profit margins and the employment numbers. GM needs to cut costs from operations because if they went through a recession right now they’d get killed,” he said.
In an effort to put the best possible light on the earnings report, GM said in a statement attributed to Chairman Roger B. Smith and President Robert C. Stempel that its overhead had been reduced by $2.6 billion in the first nine months of 1987.
