General Motors Is Making Profitable Progress in U.S., China


General MotorsThanks to strong new products, hard work around the world, and the American taxpayer, General Motors (GM) continued its profitable ways in the first quarter.

The world’s largest automaker reported a profit of $1 billion on the strength of its operations in the U.S. and China, even as other overseas losses weighed.

Excluding some one-time items, GM’s profit of $0.93 a share handily beat Wall Street’s predictions, which called for an $0.85 per-share gain.

After a record year in 2011, is the General finally on track?

Good Profits in Its Home Market

The answer is that GM is doing pretty well, but it’s still — despite the huge advantages it received from its taxpayer-funded bailout — a work in progress. This isn’t the company’s fault: GM’s current management team, led by no-nonsense CEO Dan Akerson, a former naval officer, is doing a very good job.

But the bailout and bankruptcy didn’t come close to solving all of GM’s old problems, and GM’s current leaders still have much to do.

The good news for them is that GM’s products have improved rapidly, and it’s making more money for every car and truck it sells. That was evident in the company’s North American region, where sales (in the U.S.) were down a bit, but — like rival Ford (F) — profits were up. GM’s newest models, like the hot-selling Chevy Sonic subcompact, are big improvements over the vehicles they replaced. That means GM can ask — and get — more money for them, which helps GM turn a greater profit.

That will help GM’s bottom line even more over the next year or so, as a slew of new GM products starts to arrive at dealers. Two new Cadillacs, including the stylish ATS sedan, a completely overhauled Chevy Impala, and all-new pickups (due early next year) should help drive further increases in GM’s profits — and with luck, its sales — in its home market.

Bigger Challenges Overseas

GM’s profitability at home is a good thing, because GM’s overseas operations aren’t all going so well. While GM’s cars and trucks continue to sell well in China, where the company is the market leader, its profits in the country are split with its Chinese joint-venture partners, as required by Chinese law. That said, the region contributes roughly $500 million to GM’s bottom line every quarter, so it’s quite important — and GM’s sales in places like Russia and India are also growing.

Europe is also important to GM, but it’s a different story there, where tough economic conditions have led to big declines in new-car sales. Losses in Europe took a $256 million bite out of GM’s profits for the quarter, as the company is having trouble cutting costs in the region. GM is working hard to make Europe profitable, but a successful restructuring may still be a year or more away.

Meanwhile, the company’s finances continue to look sound. Debt is low, profits continue to be solid, and GM has over $30 billion in cash, which it’s holding as insurance against an economic rainy day.

Why doesn’t GM use that money to pay back taxpayers for the cost of its bailout? It’s possible that it will, eventually — but it has to wait for the government to sell its stock first. Technically, GM has done everything it was asked to do to pay back the government, but the problem is that part of the payback was in GM stock. The stock is trading around $23 a share as I write this, but it needs to go up to a little more than $50 for the government to break even. That’s not likely to happen soon, even though GM is doing pretty well.

President Obama is unlikely to tell the Treasury to sell the stock at a loss during election season. That means any sale of the stock, and thus any further action GM might take to pay back taxpayers, will have to wait a while longer. Meanwhile, GM’s managers look to be doing all they can to finish the job of cleaning up the company’s act — and generating the strong profits that will add value to its stock in time.

At the time of publication, Motley Fool contributor John Rosevear owned shares of General Motors and Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors and have recommended creating a synthetic long position in Ford.

Tagged: automaker bailout, AutomakerBailout, Cadillac, cadillac ats, CadillacAts, Chevy Impala, ChevyImpala, China, china car sales, ChinaCarSales, Chinese law, Europe, Finance, Ford Motor Company, general

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