GM posts big profit and CEO says he’ll step down

DETROIT — General Motors Co. said Thursday it made US$1.33 billion in the second quarter, a sign it’s getting healthier as it prepares to sell stock to the public.

DETROIT — General Motors Co. said Thursday it made US$1.33 billion in the second quarter, a sign it’s getting healthier as it prepares to sell stock to the public.

It was the second straight quarterly profit for the Detroit automaker, which made US$865 million in the first quarter, and sets the stage for GM to file paperwork soon to start the public stock sale process.

CEO Ed Whitacre said last week that the company is eager to sell shares in an initial public offering so it can end its dependence on the government and pay off US$43.3 billion in bailout funds that were converted into a majority stake in the company. Whitacre wants the company to shed its “Government Motors” moniker because it’s hurting sales and the company’s image.

But it’s unclear if the recent record of profits — $2.2 billion for the first half of 2010 — is enough to convince investors. GM lost $88 billion in the five years before it filed for bankruptcy protection last June.

Although GM is performing well, the timing still isn’t right for it to sell shares in the next few months because of the sputtering economy, said Scott Sweet, senior managing partner of IPO Boutique in Tampa, Fla., which advises investors on IPOs.

Several recent IPOs have been postponed because of concerns that they won’t get a high enough share price, he said. He also said the Obama administration is pressuring GM to sell prematurely to influence the November congressional elections. However, Whitacre said last week that the elections were not a factor in the decision and the government has repeatedly said GM is in charge of the sale timing.

“The numbers are good. You can’t argue that,” Sweet said. “There is a huge incentive to have an IPO of GM, but it also must work.”

The quarterly results were good enough for Whitacre. The 68-year-old Texan said he will step down as CEO Sept. 1 and turn the job over to board member Daniel Akerson. Like Whitacre, Akerson has experience turning around telecommunications companies. Akerson has been on GM’s board for a year.

“I believe we’ve accomplished what we set out to do,” Whitacre said.

GM’s second-quarter revenue totalled $33.2 billion, up 5.3 per cent from the first quarter on growing sales in every region except Europe. In the U.S., GM saw strong sales of new and redesigned models like the Chevrolet Equinox wagon and Buick LaCrosse sedan.

Its North American unit, long a source of losses, has turned into a profit machine, making US$1.59 billion before interest and taxes in the second quarter, up 31 per cent from the first quarter. Profits from its international operations, which include China and Brazil but exclude Europe, dropped 42 per cent to $672 million, and GM lost $160 million in Europe.

Much of the North American profit came because it is getting higher prices for cars, trucks and crossovers. For example, GM said buyers paid 11 per cent more, or $3,000 on average, for crossovers than they did in the second quarter of last year. Crossovers look like sport utility vehicles but are more fuel efficient because they are based on car undercarriages.

GM said it earned $2.55 per share for the quarter. It didn’t report second-quarter results last year because it spent part of the quarter in bankruptcy protection, but on Thursday, GM said it lost $12.9 billion in the second quarter of 2009, or $21.12 per share.

So far, GM’s results are a reversal of fortune from 2009, when it lost $4.3 billion from July 10, the day it exited bankruptcy court, through Dec. 31. Before the first-quarter results, GM hadn’t reported a profit since the second quarter of 2007.

GM said it ended the quarter with $32.5 billion in cash, down from $36 billion in the first quarter.

GM has been working to streamline operations and slash costs. It has shed four brands, changed leadership and last week announced its U.S. dealership network would number 4,500, about 25 per cent smaller than it was in early 2009.

But it still faces hurdles. GM’s U.S. sales rose 14 per cent in the first six months of this year compared to the same period in 2009, according to AutoData Corp. That was slightly less than the average industry increase of 17 per cent. GM had the highest incentive spending of any major automaker at US$3,691 per vehicle, almost $1,000 more than the industry average, according to Edmunds.com.

GM has also relied heavily on sales to rental-car, government and corporate fleets, which are less profitable than sales to individual customers. Retail sales — or sales to individuals — were up 11 per cent industry wide through June, but up only one per cent at GM.

GM is the last of the Detroit automakers to report second-quarter results. Ford Motor Co. made $2.6 billion, its fifth straight quarterly profit. Chrysler Group LLC, which got $15.5 billion in government aid, narrowed its second-quarter loss to $172 million.

The U.S. government has owned a 61 per cent stake in GM since the company left bankruptcy protection.

GM has already paid $6.7 billion in government loans. Whitacre said GM wants to sell its stock all at once, rather than in batches, which would end the government’s ownership more quickly.

But the U.S. government and GM’s other stakeholders — a United Auto Workers health-care trust, which owns 17.5 per cent of the company; the Canadian and Ontario governments, which own about 12 per cent; and old bondholders, who own 9.8 per cent — will ultimately decide how much of their equity to sell.

The Ontario government, for example, has said it won’t rush into selling its stake in the company. “I think we need to be patient and we need to be businesslike in terms of understanding when the time is going to be appropriate,” Premier Dalton McGuinty said in June.

The Ontario government took a four per cent stake in the troubled automaker while the federal government took eight per cent after they together lent it C$10.5 billion. About $9 billion of that loan was converted to equity when the so-called “new GM” emerged from bankruptcy protection, while the rest has been paid back.

A GM IPO could be the largest such sale in U.S. history. It would have to bring in US$70 billion to pay back all of GM’s stakeholders; some analysts expect the IPO will be worth at least than much. That would be more than Ford’s market value of roughly $44 billion, but less than the total value of Toyota’s shares of about $113 billion.

Currently the largest U.S. IPO is a 2008 offering by Visa Inc. that netted nearly $18 billion.

GM is taking steps to boost its U.S. sales. In July the company said it would buy AmeriCredit Corp., an automotive financing company that serves the subprime market, for $3.5 billion. Though it was partners with Ally Financial Inc., formerly known as GMAC, GM previously lacked a so-called captive financing company, which can offer better rates to customers than outside financial sources.

GM also has several new vehicles in the pipeline. Its new Chevrolet Cruze, due out next month, is GM’s latest bid to make a desirable — and profitable — small car. Later this year, the company will begin selling the Chevrolet Volt, a US$41,000 electric car with a small gas engine that extends its range.

———

Includes files from The Canadian Press