GM Has Record Profit for Year, Fourth Quarter
General Motors Corp. on Monday reported record fourth-quarter and yearly net earnings as cost-cutting and improved sales of high-profit vehicles allowed it to overcome competitive pressures and problems abroad.
The strong report makes it certain that the nation’s Big Three auto makers--GM, Ford Motor Co. and Chrysler Corp.--will post combined earnings of about $15.5 billion, far surpassing the industry record of $13.9 billion set in 1994. The healthy earnings come even as the auto industry is facing intense competitive pressures, forcing manufacturers to hold prices or offer hefty incentives to sell cars and trucks.
GM, the world’s largest auto maker, posted fourth-quarter net income of $1.7 billion, or $2.36 a share, compared with $786 million, or 92 cents a share, a year ago. Yearly earnings were $6.7 billion, or $8.70 a share, up from $5 billion, or $6.07 a share, in 1996. Revenue was up 18% to $48.4 billion for the quarter, and up 8% to $177.7 billion for the year.
The results included a $4.3-billion gain relating to the sale of Hughes Electronics defense operations to Raytheon Co. It was offset by a previously announced $4-billion charge for write-downs of under-performing car lines and parts manufacturing assets, and for several plant closures.
Without the charges, GM had operating earnings of $1.5 billion in the fourth quarter, nearly double the year-earlier $848 million. Operating profit for 1997 totaled $6 billion, up from $4.7 billion the previous year.
“We’ve made some good progress, but we still have further to go,” said GM Chairman John F. Smith Jr.
The operating results were slightly higher than Wall Street expectations. GM shares rose 6 cents to close at $57.13 on the New York Stock Exchange.
“The results were pretty decent,” said David Healy, an analyst with Burnham Securities. “They got better volumes and lowered costs in North America.”
But he cautioned that it will be difficult for GM to match the performance this year. Industry sales are likely to moderate and pricing pressures will continue.
Michael Losh, GM’s chief financial officer, said the company’s North American operations continued to improve, helping to overcome difficulties in Europe, Latin America and Asia.
The financial turmoil in Asia had little direct impact on GM’s bottom line because the company is a small player in the region. But it spilled over into other regions, notably Brazil, and made Japanese cars cheaper in the United States by further weakening the yen.
GM’s foreign operations earned $981 million in 1997, down from $1.5 billion the previous year. Profit in Europe tumbled from $778 million in 1996 to $313 million last year, reflecting higher marketing and vehicle launch costs. In other regions, including South America and Asia, earnings were $668 million, down from $754 million the previous year.
The brightest spot was North America, once a disaster area for GM. The company saw earnings soar from $333 million in 1996, when it was hit by several strikes, to $2.3 billion.
One area of concern is GM’s continued loss of market share. It ended 1997 with 30.8% of the U.S. market, down from 31%. GM blamed the loss on a major strike in March. GM also followed other auto makers by adding incentives on many cars and trucks. GM doled out an average of $1,027 in rebates for every U.S. vehicle sold last year, up 55% from 1996.
GM is the second of the Big Three to report earnings. Chrysler reported Friday that its 1997 earnings fell 24% to $2.8 billion because of higher incentives and new-model introductions.
Ford is expected today to report record earnings of about $6.5 billion for 1997. The strong profit stems from a $3-billion reduction in operating costs and brisk sales of highly profitable sport- utility vehicles and pickup trucks.
* OTHER EARNINGS: D3
