Resurgent General Motors posts record $7.6-billion profit for 2011

http://www.latimes.com/business/autos/la-fi-autos-gm-comeback-20120217,0,5227978.story

By Jerry Hirsch, Los Angeles Times

February 16, 2012, 6:42 p.m.

Three years after nearly collapsing into liquidation, a resurgentGeneral Motors Co.has posted its best annual profit, surpassing what it earned during its heyday in the mid-1990s.

In earning $7.6 billion last year, the automaker demonstrated how it has capitalized on its 2009 bankruptcy reorganization and federal bailout to shed brands, slash debt, rewrite union contracts and close surplus factories.

The record annual earnings represented "a remarkable turnaround from what appeared to be a hopeless situation," said Jesse Toprak, an analyst with automotive information company TrueCar.com.

GM now has about a $2,000-per-car manufacturing advantage over its Japanese and European rivals, a swing from a similar-sized disadvantage before the restructuring, said David Cole, chairman emeritus of the Center for Automotive Research.

That's helped GM make huge profits at what are still relatively low levels of auto sales in the U.S. and made it competitive in the small-car business, where it now has competitive vehicles such as Chevrolet's new Cruze and Sonic sedans, Cole said. The automaker lost about $100 billion in the years before the 2009 rescue.

GM is generating strong profits in North America and China. But it is losing money in South America and Europe, where it acknowledged significant problems that Chief Executive Dan Akerson said will require the type of wrenching restructuring the automaker underwent to right its North American operations several years ago.

"We've got to look at every aspect of the business," Akerson said.

The company is expected to reveal cost and production cuts in Europe within months.

The annual profit for 2011 represented a 62% gain over the previous year. Revenue increased 11% to $150.3 billion. Fourth-quarter profit fell 7% to $472 million, while revenue increased 3% to $38 billion.

Akerson said he wants GM's profit margin of 5.5% in 2011 to grow to match that of the best-performing auto companies, which is about 10%. That would put GM on track to earn annual profits of $10 billion.

Last year's record earnings came at the same time the Detroit automaker recaptured its spot as the world's largest car seller. GM's global sales rose 7.6% to 9 million vehicles in 2011. It last held the top spot in 2007, before it was surpassed byToyota Motor Corp.the next year.

But Thursday's results showed that GM still has work to do shoring up its overseas business.

Most of the company's profit is coming from its North American operations, which produced $7.2 billion in operating income last year, up from $5.7 billion in 2010. GM accounts for about 1 out of every 5 vehicles sold in America.

Based on those financial results, GM said it would pay profit-sharing of up to $7,000 to about 47,500 U.S. hourly employees.

Europe remains the problem spot. GM lost $747 million there last year. Although that was just a third of the losses the previous year, the auto industry is expecting a difficult 2012 in Europe because of the sluggish economy there and the continuing debt crisis in Greece.

The problem is that there are too many automakers turning out too many cars in Europe right now, said Peter Nesvold, a Jefferies & Co. analyst.

"Each country has its own home team or domestic manufacturer, and full production seems to be an employment plan in each of those countries, so the industry is overproducing vehicles," Nesvold said.

GM will have to reduce its capacity but might not have the ability to do so until its European labor contracts come up for renegotiation in 2014, he said.

Akerson said GM is talking to the region's labor unions and governments about ways to cut costs to make its operations profitable there.

Late last year, GM reorganized the senior management of its European operation, placing Vice Chairman Steve Girsky as chairman of its Opel subsidiary's supervisory board.

GM also lost $122 million in South America last year, after posting operating income of $818 million in the region in 2010.

China continues to produce profits for the automaker. Its international operations, of which China is the main component, had operating profit of $1.9 billion last year, compared with $2.3 billion in 2010.

U.S. taxpayers have a stake in GM's financial performance because the federal government owns about 27% of the automaker's stock, including unexercised options and warrants.

GM has repaid $24.1 billion of the $49.5 billion in government aid it received. The repayments include the proceeds from the automaker's public stock offering. The government would have to get more than $50 a share for its remaining holdings to recoup what it put into the business.

GM shares rose $2.24, or 9%, to $27.17 on Thursday.

The GM profit was reflective of a string of good earnings from the auto industry this year.

Last monthFord Motor Co.posted an annual pre-tax operating profit of $8.8 billion, almost 6% above the previous year and the best since 1999. It now has recorded 10 consecutive quarters of operating profits. Its annual net income reached $20.2 billion, but that was because of a special one-time, non-cash tax gain.

This month Chrysler Group reported its first annual profit in years. It earned $183 million last year, compared with a loss of $652 million in 2010. Sales rose 31% to $55 billion.