More than a year ago, General Motors Corp. Chief Executive John F. Smith promised that GM's key operations in North America would return to profitability in 1994. "No excuses," he said.
The nation's largest auto maker delivered on Smith's promise Tuesday by posting an annual profit in North America for the first time in five years and full-year companywide earnings of $4.9 billion, a record.
The performance reflects strong auto sales--which some analysts fear are beginning to weaken--and the impact of GM's efforts to cut costs.
GM lost about $18 billion in Canada, the United States and Mexico from 1990 to 1993, and just three months ago, its North American turnaround seemed stalled when it reported a $328-million quarterly loss blamed on labor strikes, high production costs and slow model launches.
But GM ended the year with annual earnings of $690 million in North America, contrasted with a loss of $872 million in 1993. For the fourth quarter, GM earned $492 million on the continent, contrasted with a profit of $431 million for the final three months of 1993.
Smith said that with North America profitable, "the 1994 results reflect an impressive balance in earnings, with positive contributions from all five business sectors and broad geographic diversity."
Investors apparently agreed. GM's stock closed Tuesday at $38.875, up $1.50 a share, in heavy trading on the New York Stock Exchange.
"It was a strong report that indicates the production problems that plagued them in the third quarter were worked out in the fourth," said David Healy, an analyst with S.G. Warburg in New York.
The company's overall earnings translate into $5.15 a share on revenue of $42.6 billion. A year ago, GM had net income of $2.5 billion, or $2.13 a share, on sales of $37.3 billion. For the fourth quarter, the company earned $1.6 billion, or $1.74 per share, compared to net income of $1.2 billion, or $1.28 a share, for the '93 period.
GM is the second of the Big Three to post record earnings. Chrysler Corp. last month reported record 1994 net income of $3.7 billion. Ford Motor Co. will report its earnings today. Altogether, the U.S. auto makers are expected to have earned about $13 billion, surpassing the $11-billion record set in 1988.
The profits come even as concerns are surfacing that sales may have peaked. A recent slowdown in small-car sales, higher inventories of popular models and more rebates provide evidence of a weakening market. Higher interest rates could also hurt sales. Nonetheless, the Big Three and many analysts believe sales will increase modestly this year. "When all is said and done, we still think there will be some growth in the market," said Michael Losh, GM chief financial officer.
A strong sales market is considered important for GM to complete its restructuring. In the last two years, GM has reduced its hourly work force by 15%, closed plants and reduced operating costs. Still, productivity gains slowed last year, and GM remains the least efficient U.S. auto maker.
"There is progress," said Mary Ann Keller, an analyst with Furman Selz. "But relative to its domestic rivals, GM still has a long way to go."
The company gave workers a $550 profit-sharing bonus last year, the first since 1990. The questions remains, however, whether GM can avoid labor strife. It has been hit with six local strikes in the past year, and more are expected.