Accounting Change Boosts GM’s Earnings

General Motors Corp. reported Tuesday that 1987 fourth-quarter earnings more than doubled over a year earlier, although much of the improvement was attributed to accounting changes and tax benefits.

For the year, the nation’s largest auto maker said earnings jumped 20.6%, helped by record contributions from subsidiaries and overseas businesses, but earnings from North American auto operations rose marginally.

“We have come a very long way in the past few years and we have a way to go before the repositioning of GM is complete,” GM Chairman Roger B. Smith wrote in a letter to stockholders mailed Tuesday to explain 1987’s results.

The auto maker blamed its poor North American performance on the costs of starting nine new plants, introducing products, running buyer incentive campaigns and laying off thousands of salaried workers.

GM’s worldwide vehicle sales also fell in 1987, sliding 9.4% to 7.8 million cars and trucks from 8.6 million in 1986. In the United States, sales fell 12% to 5.1 million vehicles from 5.8 million in 1986.

For the second consecutive year, GM earned too little on U.S. sales to pay profit sharing to its 360,000 hourly workers in this country. Workers were angered by the lack of profit sharing in 1986.

“We believe GM will turn the corner in its vehicle business, hopefully starting this year. When that happens our members at General Motors will receive their fair share of the profits,” United Auto Workers Vice President Donald Ephlin said in statement to reassure UAW members.

In a letter mailed to all hourly and salaried employees, GM said, “In the current competitive climate, we think jobs are more important than profit sharing.”

GM President Robert Stempel, in San Francisco for a national auto dealers’ convention, said he expects GM’s U.S. and Canadian businesses to earn strong profits in 1988.

“We were particularly pleased with the fourth quarter. We had new plants coming on stream and made progress in cost-cutting and productivity improvements. December was a good month from a performance standpoint,” Stempel said.

In the fourth quarter, GM’s net income jumped nearly 119% from a year ago, to $835.8 million on revenue of $26.38 billion. From October to December, 1986, GM earned $382.3 million on revenue of $25.53 billion

For the year, GM said it earned $3.56 billion on revenue of $101.78 billion. In 1986, it earned $2.95 billion on revenue of $102.81 billion.

But without an accounting change in the way GM depreciates plants and equipment, which added $800 million to 1987 profits, GM probably would have earned slightly less than in 1986.

The accounting change also added about $230 million to fourth-quarter earnings, GM spokesman Bill Winters said.

The profit also was boosted by a $60-million net income tax credit, down from $300 million in 1986.

In North America, GM earnings fell about 49% from 1986. GM earned $1.75 billion in the United States and Canada in 1987, down from about $3.44 billion in 1986, Winters said.

GM did not release figures on earnings of U.S. and Canadian auto operations, but said the amount was nominal. Analysts estimated the figure at $200 million or less.

“We did not lose money making cars and trucks,” Winters said.

Chrysler Profit Falls

GM’s three subsidiaries each earned record profits in 1987 and GM’s overseas operations rebounded from a $600-million loss in 1986 to a record $1.9-billion profit in 1987.

General Motors Acceptance Corp., GM’s credit arm, earned $1.5 billion for 1987, up from $1.2 billion in 1986.

Electronic Data Systems Corp., a GM computer services company, earned $323.1 million in 1987, up from $260.9 million a year ago.

GM Hughes Electronics, a defense and automotive electronics company, earned $670 million in 1987, up from $594 million in 1986.

Last week, Chrysler Corp., the No. 3 U.S. auto maker, said its profit fell 7% in 1987 to $1.29 billion from $1.39 billion in 1986. For the fourth quarter, Chrysler’s earnings rose 8% to $350.2 million from $324.2 million in fourth-quarter, 1986.

Ford Motor Co., the nation’s second largest auto maker, is scheduled to report 1987 earnings later this month. Ford’s hourly workers received an average of $2,100 in profit sharing for 1986 and were expected to receive at least $3,000 on average for 1987.