GM Reports $513-Million First-Quarter Earnings; Cost Controls Are Credited
A newly invigorated General Motors Corp. reported Thursday that it earned $513 million in the first quarter, though most of the gains came from its profitable non-automotive businesses.
Fresh from its successful attacks on a flawed NBC News investigation, the auto maker also said it will refuse today to recall 4.7 million pickup trucks, charging that federal regulators used unreasonable crash tests to show that the trucks have a fuel tank safety defect.
In announcing its quarterly earnings--which amounted to 42 cents per share--GM credited cost controls for its performance. In the same period in 1992, the No. 1 auto maker had an operating loss of $166.7 million, or 53 cents a share.
“This quarter lends a lot of credibility to their goal of breaking even in North America this year,” Sanford C. Bernstein & Co. analyst Joseph Paul said. “I think we should all feel a lot better they are finally addressing a lot of fundamental problems the company has had for a long time.”
Overall, GM lost an unprecedented $21 billion, or $33.96 a share, in the January-March period last year. The 1992 figure reflected the adoption of new accounting standards for future retiree health care, but it also reflected the weakness in GM North America.
In the latest quarter, GM’s North American automotive operations had an after-tax loss of $194 million, compared to a $1.23-billion loss a year ago.
General Motors is in the midst of a major restructuring program aimed at sharply reducing its North American capacity and payroll. It plans to close 23 parts and assembly plants in the United States and Canada by the mid-1990s, cutting more than 74,000 jobs.
Smith Barney, Harris Upham & Co. analyst Wendy Needham said GM had benefited from a series of operational changes. Those changes included negotiating better terms with suppliers and eliminating duplication and waste throughout its vast system.
But at a news conference, GM officials conceded that the auto maker still has much work ahead.
“We’re encouraged by our financial performance in the first quarter, but we recognize that this is just the first step in meeting our aggressive financial goals for this year and the future,” Chief Executive Jack Smith said.
Worldwide revenue rose 8.4% to $34.96 billion from $32.26 billion a year earlier. Gross profit margins improved to 14.2% from 12%.
While overall sales were sluggish in the January-March period, that was in part because of GM’s decision to cut back on low-profit sales to daily rental companies. In recent weeks, car sales have joined light trucks in showing improvement.
Despite the gains in North America, analysts said, weaker than expected income in Europe and the stifling effects of lower credit ratings for the General Motors Acceptance Corp. loan business hurt GM’s overall profit.
General Motors Acceptance Corp., Electronic Data Systems and GM Hughes, a high-tech and defense subsidiary, earned a total of $624 million in the quarter, down from $651 million in the year-earlier period.
GMAC earned $284 million in the first quarter, down 18.6% from $349 million in last year’s first quarter. By contrast, Ford Motor Co.'s lending subsidiary reported record first-quarter earnings.
“If you look how much down GMAC was, that is indicative of what has happened to General Motors,” Furman-Selz analyst Maryann Keller said.
Smith said GM was seeing improvement in cash flow, and he was pleased with North American performance. Cash flow in the quarter improved to $4.1 billion, contrasted with a negative $377 million in last year’s first quarter.
General Motors lost $1.375 on the New York Stock Exchange Thursday, closing at $41.
In announcing it was refusing a government request to recall its 1973-87 full-size pickup trucks, GM said the National Highway Traffic Safety Administration exceeded any existing or planned side-impact safety standards when it conducted crash tests on the vehicles.
NHTSA used the tests to back up its April 9 request that GM recall the trucks, which are equipped with side-mounted fuel tanks that critics claim are prone to puncture and fires in side-impact crashes.
GM’s formal rejection of the recall request, expected to be filed with NHTSA today, will be the auto maker’s latest volley in an ongoing battle over whether the trucks should be recalled--an action analysts say could cost GM more than $1 billion.