GM’s Loss Narrows; Its Share Price Jumps 10%
General Motors Corp. posted a sixth straight quarterly loss Thursday, but the automaker significantly narrowed its deficit and easily beat analysts’ expectations. Its stock rose 10% in heavy trading.
Most of the improvement came from GM’s financial and overseas automotive businesses. First-quarter revenue rose 14% to a record $52.2 billion, driven by big gains in China and Asia. GM also posted its first profit in Europe since 2000.
GM’s unspoken strategy is “to try to hold as much ground as possible in the U.S. but take the fight overseas. That’s where they are making strides now,” said Daniel J. Genter, president of RNC Genter Capital Management in Los Angeles, whose $2.3 billion in assets include $50 million in General Motors Acceptance Corp. bonds.
Overall, GM lost $323 million in the period ended in March, or 57 cents a share, compared with a $1.3-billion loss, or $2.22, for the same period last year.
“It’s a quarter of good, solid progress,” GM Chief Financial Officer Frederick “Fritz” Henderson said.
GM’s shares gained $2.07 to $22.64, marking the biggest one-day percentage jump in its stock since May.
GM’s crucial North American automotive operations, however, continued to be a disappointment.
The company reported a $946-million loss on the continent, including a $484-million charge for adjustments to its retiree healthcare plan. That contrasts with a loss of $1.5 billion a year earlier.
GM’s market share in the U.S. for the quarter fell to 24.1% from 25.7% a year earlier in the face of intense competition from import brands, led by Toyota Motor Corp.
GM’s new strategy of reducing incentives and sticker prices, combined with buyer enthusiasm for its new large sport utility vehicles, helped boost revenue per vehicle in the U.S. by about $1,000 in the quarter to an average of $19,960, Henderson said.
“That’s very positive,” said auto industry analyst Rebecca Lindland of Global Insight economic forecasting in Lexington, Mass. “It shows that their pricing and product strategies are being effective.”
Although the results surprised analysts, they cautioned that GM still faced considerable obstacles in its turnaround effort, including rising gasoline prices that could slow sales of the automaker’s new big SUVs and pickup trucks. The average price at the pump Thursday passed $3 a gallon in California.
GM also faces a threatened strike at its largest parts supplier, Delphi Corp., that could cripple its North American production. Delphi, GM’s former parts division, is in bankruptcy protection, and the automaker is expected to foot the bill for billions in Delphi’s labor and pension costs.
Last year, GM lost $10.6 billion amid slowing U.S. sales and rising healthcare and other labor costs.
The company hopes to win concessions on healthcare, work restrictions and pension plans from its workers when talks begin late next year on a new labor contract.
Chief Executive Rick Wagoner previously announced plans to cut 30,000 jobs and close a dozen plants because of declining sales in North America.
To help speed up the job cuts and ease pressure on Delphi, GM last month offered buyouts and retirement incentives to more than 125,000 U.S. factory workers, including 13,000 at Delphi.
Delphi remains in talks with its unions on wage cuts as part of a reorganization plan, and GM executives have made avoiding a strike at the parts supplier a key priority. “We are confident we will find a solution. Work stoppage doesn’t benefit anyone,” Henderson said.
GM ended the quarter with $21.6 billion in available cash and equivalent assets. But it still burned through $1.2 billion during the period and has been selling assets to help raise more.
The automaker has agreed to sell a 51% stake in its GMAC financing arm for about $14 billion to an investment consortium. GMAC contributed $605 million in earnings to GM during the quarter.
Selling GMAC will raise much-needed cash “but will push GM’s largest profit contributor for years out the door,” Merrill Lynch analyst John Murphy said in a note to investors.
GM also posted pretax income of $2 billion in the first quarter from the sale of its interest in Japan’s Suzuki Motor Corp.
