GM Posts Record Profit; Celebration Will Be Brief
General Motors reported a record profit of $7.6 billion, but the celebration of the milestone will be short and sweet since much work remains to be done. "A lot of good things happened in 2011," GM CEO Dan Akerson said in a conference call with analysts and media Wednesday.
Indeed, 2011 saw much good for GM, which only a few years ago was facing extinction until it was forced into Chapter 11 bankruptcy and bailed out with help from U.S. taxpayers. The bankruptcy left GM with a far healthier balance sheet upon which to build, as it did with a record $7.6 billion profit. That surpassed by the previous record of $6.7 billion earned in 1997 and far outpaced 2010's $4.7 billion. GM re-assumed its status as world's biggest automaker in terms of vehicle sales.
But as Akerson pointed out, much more needs to be done as GM hopes to break that new record this year.
GM must do something drastic with its Opel subsidiary in Europe, which is blamed for GM's soft fourth quarter. By now, GM had planned for Opel to break even or be slightly profitable. Instead, even though losses were cut from 2010 to 2011, Opel still lost money in 2011 loss — its 12th consecutive one. Most of the $747 million lost by Opel in 2011 came in the final quarter as Europe's economy deteriorated, a situation not expected to approve at least through 2012.
But Europe wasn't the only trouble spot for GM. Earnings from GM's international operations were down from a year earlier. In South America, GM lost $122 million compared with earning $818 million in 2010 as it restructured operations there and revamped its dated product line.
North America and China were GM's bright spots. GM earned $7.2 billion in North America in 2011, up from $5.7 billion in 2010. But the year closed on a lower note than it started on. GM made $468 million, down from $510 million a year ago, marking its lowest quarterly profit since the automaker's initial public offering in November 2010.
GM's hefty sales gains in United States for the first three quarters of 2011, narrowed in the fourth quarter with sales up a scant 4 percent, causing market share to slip from previous quarters. That was due in part to Toyota and Honda, whose vehicle production was crippled by the Japan earthquake last March, were regaining steam. The Japanese are expected to continue to recover this year, which could require GM to boost incentives to compete.
In 2011, GM lowered incentives an average of 6 percent in 2011, according to calculations Edmunds.com. Yet, in contrast to Ford and Chrysler, GM's average transaction price dipped. The average GM vehicle sold for $32,915 in 2011, compared with $32,965 in 2010. That may reflect a mix of less expensive vehicles. GM is having success with its new cars, like the Chevrolet Cruze and Chevrolet Sonic as well as the Buick Verano, but they are less profitable vehicles than trucks and SUVs.
By year-end, GM inventories appeared to be building. The time a vehicle was delivered to a dealership, sold and driven away by a paying customer averaged a still respectable 55 days in 2011 versus 49 days in 2010, according to Edmunds.com's calculations.
"We clearly have work to do in Europe," Chief Financial Officer Dan Ammann said in the conference call. "We have work to do in the South America business. Frankly, we have work to do all around the company in terms of cost opportunities."
GM — and U.S. taxpayers — look for that continued work to be recognized with a higher stock price so the government can sell off its stake in the automaker. Following GM's earnings announcement, GM's stock price closed 9 percent higher.