4th Quarter Caps a GM Turnaround : Autos: Company earned $2.46 billion last year, including a rare quarterly profit in North America.
A year ago, General Motors Corp. was spending an average of 35 hours to build a car. Today, that time has been cut by 10%.
In 1992, GM pumped up sales by shipping nearly 750,000 vehicles at cut-rate prices to rental car companies. In 1993, it sold only 500,000 cars to rental fleets, while boosting more profitable retail sales.
Two years ago, GM had a salaried staff of 91,000. Today, those ranks have been trimmed to 71,000; several thousand more white-collar jobs will be eliminated this year.
These signs of a more efficient and cost-conscious company are among the reasons why GM, once the basket case of the world automotive industry, reported fourth-quarter earnings Thursday of $1.18 billion.
More important, the auto behemoth made a quarterly profit in its North American auto operations for the first time since the spring of 1989.
GM’s turnaround from a $652-million fourth-quarter loss in 1992 is further evidence of a U.S. auto boom being driven by free-spending consumers seeking to replace aging vehicles.
Together, GM, Ford Motor Co. and Chrysler Corp. had operating earnings of $7.41 billion in 1993--the Big Three’s first profitable year since 1989.
GM earned $2.46 billion, or $2.13 a share, for 1993. The company lost a record $23.5 billion, or $38.28 a share, in 1992, but that included a onetime $20.8-billion charge for future retiree health benefits. GM’s revenue for 1993 totaled $138.2 billion, up 4.5% from 1992.
While the company’s automotive operations showed significant improvement, the 1993 earnings were solely attributable to the strong performance of three non-auto units: GMAC financial, EDS computer services and Hughes Electronics.
In the fourth quarter, however, the company’s automotive operations contributed more than 40% of the firm’s $1.28-a-share profit. The biggest turnaround came in North America, where GM had operating earnings of $427 million in the final three months, compared to a loss of $1.79 billion in the year-earlier period.
“We’re encouraged by the trend, but we can’t be satisfied until the earnings power of our operations in North America is fully restored,” said John F. Smith, GM chief executive and president.
The company--belittled for its inefficient factories, bloated work force and dated cars and trucks--has lost nearly $18 billion in North America since 1990, including $982 million in full-year 1993.
Smith’s goal was to make the company profitable in 1993 in North America before interest, taxes and retiree health care benefits. Having hit that target, he now promises net earnings in 1994.
“No excuses,” Smith said.
In recent weeks, the expectation of improved results has driven GM’s stock to its highest level in 30 years. But the shares retreated Thursday to $62.50, down $1.75 in trading on the New York Stock Exchange as investors took profits in the entire auto sector.
Analysts said GM’s results were aided by a $444-million federal income tax credit taken in the fourth quarter. “About 40% of the fourth-quarter net income came from the tax department, not the auto department,” said David Healy, an analyst with S.G. Warburg, a New York brokerage.
Still, most analysts were impressed with GM’s advance.
“Without a doubt, year over year GM is making progress in North America,” said David Garrity, analyst for McDonald & Co. Investments in New Jersey.
GM attributed the improvement to both the growing economy and the company’s ongoing restructuring.
The company’s U.S. sales increased about 6% last year, but its market share retreated to 33.2% from 33.9% in 1992. GM officials said the share loss was in part due to 250,000 fewer fleet sales. The fleet sales kept factories running but provided little profit and eroded new car sales.
“That is an assembly plant of volume,” said G. Richard Wagoner, chief financial officer. “But it was costing us a tremendous amount of money.”
With retail demand on the rise, GM has been able to reduce rebates and other incentives. The average incentive was $880 per vehicle in the 1993 fourth quarter, down from $960 a year earlier.
GM Comes Back
Quarterly profit, in millions of dollars:
$1,180
-$21,044 (includes provisions for future retiree health care costs.)
Source: Company reports; American Automobile Manufacturers Assn.
