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GM Reports $2.16 Billion Profit Ahead of Share Sale

November 10, 2010
4 min to read


General Motors Co. reported third-quarter net income of $2.16 billion, in line with preliminary results given last week, as the largest U.S. automaker prepares for an initial public offering, Bloomberg reported.


Earnings before interest and taxes rose to $2.28 billion from $2.03 billion during the previous three months of the year, the Detroit-based company said. Revenue was $34.1 billion.

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CEO Dan Akerson, who took over from Ed Whitacre on Sept. 1, has said GM can make “significant” profit even amid a U.S. auto sales rate that is running about 30 percent slower than before the financial crisis. The automaker, 61 percent owned by the U.S. government, reduced costs through bankruptcy and is selling new cars for higher prices.


“GM’s numbers were as advertised and they were good,” said Joe Phillippi, principal of consulting firm AutoTrends Inc. in Short Hills, N.J. “As they ramp up production -- assuming people like their cars -- in three to five years, they could be hitting some much bigger numbers.”


GM plans to raise as much as $10.6 billion by selling 365 million shares at $26 to $29 each, according to a Nov. 3 filing with the Securities and Exchange Commission. The company also will offer about $3 billion of preferred shares that later will become common stock. GM has said the offering may price as soon as Nov. 17.


The automaker’s North American operations had profit before interest and taxes of $2.13 billion, a 33 percent increase from the second quarter’s $1.59 billion. GM said production in the region rose 33 percent to 707,000 vehicles, including a 51 percent gain in truck output.


“They’ve grown in emerging markets and they continue to do well in emerging markets, but North America was the anchor that took them into bankruptcy,” Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Mich., said in a telephone interview. “How North America goes, so goes GM.”

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GM is telling prospective investors that it can earn $19 billion before interest and taxes if U.S. vehicle sales return to previous highs of around 17 million a year, said two people familiar with the presentation. U.S. light-vehicle sales peaked at 17.4 million in 2000.


Earnings before interest and taxes at GM’s international operations slipped 3.9 percent from the previous quarter to $646 million. The loss in the automaker’s European operations widened to $559 million before interest and taxes, more than triple the $160 million in the three months ended June 30. GM Europe lost $1.2 billion on an Ebit basis in three quarters this year.


“We know we have much more work to do,” Akerson, 62, said on a conference call. “We still need to fix Europe. We continue to be vigilant in reducing cost in the enterprise, and we have just started doing a better job in marketing our brands to consumers.”


The automaker generated $2.62 billion in cash from operations and said it ended the quarter with $33.5 billion in cash and marketable securities.


GM’s $34.1 billion in third-quarter revenue compares with $25.1 billion in a year-earlier period that was nine days shorter because the company was in bankruptcy.

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While earnings before interest and taxes will be positive in the fourth quarter, they will be “significantly lower” than the run rate in the first three quarters of the year, Akerson said on the call.


GM said in its Nov. 3 regulatory filing that Ebit would be lower than prior quarters because it will be building a different mix of vehicles and engineering costs for future models will be higher. GM is introducing the Chevrolet Volt gas-electric car and Chevy Cruze compact during the quarter.


The company and its Chinese joint ventures are on pace to sell 2 million vehicles this year in the world’s largest auto market, GM said last week. GM’s partnerships, which include SAIC Motor Corp. and Wuling Group, earned $1.1 billion of equity income net of tax this year through Sept. 30.


GM will pay $51 million in cash and provide technical services to raise its stake in Wuling to 44 percent, the company said today in an updated filing of its IPO prospectus.

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