GM Reports Profit to End Tumultuous Year

Leaping ahead of its domestic competition in a declining market, General Motors Corp. said Wednesday that it earned $255 million in the fourth quarter, or 60 cents a share.

GM’s nascent comeback occurred in a tumultuous year that combined difficult pricing pressures after the Sept. 11 terrorist attacks and intensified competition in cars and trucks.

It was “a good quarter in a very tough environment,” said John Casesa, auto industry analyst for Merrill Lynch in New York. “Deteriorating industry fundamentals and declining volumes will pressure the company’s results in 2002.”

For the year, the world’s largest auto maker earned $1.5 billion, or $3.23 a share, on revenue of $177.3 billion excluding special items, down from a $5-billion profit, or $8.58 a share, on record sales of $183.3 billion in 2000.

After 11 years of losing market share in the U.S., GM managed a slight improvement in 2001, rising from 28.2% to 28.9%, according to the tracking firm Autodata. GM’s share of the light truck market, which includes sport-utility vehicles, grew more dramatically, finishing the year with 29.2% of the U.S. market, up from 27.0.

GM’s net earnings for 2001 were $601 million, or $1.77 a share, compared with net profit of $4.5 billion in 2000, or $6.68 per share.

GM recorded positive results in North America and the Asia-Pacific market and with GM’s financing arm GMAC, which earned $435 million in the quarter, up more than 6% from the same three-month period in 2000.

GM’s Hughes Electronics subsidiary, which is in the process of being sold to EchoStar Communications Inc., lost $131 million in the quarter, compared with a $74-million loss in the last three months of 2000.

“Automotive operations were not as profitable as we’d like, but they were profitable. We’re still losing a considerable amount of money in Europe,” Chief Financial Officer John Devine said in a conference call with analysts and reporters. “Pricing was tougher in North America, which cost us some profit, though not volume. Despite the shortfall, we feel the earnings story is a pretty good one.”

Global auto operations earned $708 million, although in Europe GM lost $767 million, due mostly to red ink at GM’s German subsidiary, Adam Opel.

“They definitely are performing better than their domestic rivals, and they seem to have future momentum that the other guys don’t have,” said Nicholas Lobaccaro, senior auto analyst with Lehman Bros.

GM regained momentum after Sept. 11 with zero- and low-interest loans that were matched by the competition. While the programs were costly, they supported healthy fourth-quarter sales, especially for GM.

“We’re in good shape to meet the tough competitive challenges in the year ahead,” Chief Executive Rick Wagoner said. “As we continue to introduce more new models this year and intensify our focus on efficiencies and cost reductions, we’re well-positioned when the economy rebounds.”

The profit news caps a year where GM’s fortunes went the opposite way from archrival Ford, which is expected to report a loss of more than $5 billion Friday.

Ford Motor Co. said Friday that it is planning to close five North American factories and eliminate 35,000 jobs in a sweeping turnaround effort.

In contrast GM hit a number of positive milestones in 2001.

It showed significant improvement in initial quality, and its productivity outpaced its competition in two respected independent studies in North America.

GM hired respected industry veteran Robert Lutz as vice chairman for product development in August, and later added the title of chairman for North America.

In four months, he already has tweaked the designs of a number of upcoming vehicles and ordered up the Pontiac Solstice concept car--a process that usually takes at least a year. It is now on display at the Detroit auto show.

Lutz says the Solstice, built largely from off-the-shelf GM components, could be sold for $25,000, an indication that the auto maker is likely to produce the car in the near future.

And GM ended the year setting a record for the most light trucks sold in the U.S., wresting the truck leadership title back from Ford.

But executives are wary of the expected continued downturn in the auto market this year.

“We’ve targeted significant reductions in material and structural costs for 2002, in addition to reducing nonproduct-related capital expenditures,” Wagoner said.

The company is continuing plans to reduce its salaried work force by 10% a year--about 4,700 jobs in 2002--through attrition and voluntary buyouts, Devine said last week. The number of contract employees also will be reduced.

GM has set a target for 2002 earnings of $3 a share, to be achieved through cost cutting, including job reductions and negotiating lower prices from suppliers, Devine said.

The company also needs to cut its production capacity further, he said, noting that GM was producing at 84% of capacity in 2001. Given that GM produced 4.9 million cars and trucks in North America last year, that means the auto maker has about 900,000 extra units of capacity, the equivalent of three or four full-size factories.

GM shares slipped 21 cents on Wednesday to close at $49.75 in New York Stock Exchange trading.