GM Posts $3.2 Billion Dollar First Quarter Profit

by Jeff Gilbert
WWJ AutoBeat Reporter

Interview: GM CFO Dan Amman talks about the company's first quarter earnings.

DETROIT (WWJ) GM is getting the year off to a solid start, posting a $3.2 billion dollar first quarter profit.

"This, from our perspective, was a solid first quarter," said GM Chief Financial Officer Dan Ammann. "It sets us up well for the balance of the year. We feel that we're on plan and we're delivering what we expected and wanted to deliver, and we've got to deliver for the rest of the year. That's our job."

Amman telling WWJ AutoBeat Reporter Jeff Gilbert that GM expects its full year 2011 earnings to be better than last year.

"There's a lot of growth that we're delivering all over the world," he said. "We see the industry recovering."

General Motors made a $2.9 billion dollar profit in North America, and earned money in all parts of the world, except Europe, where it cut its losses in half.

The first quarter earnings were boosted by the sale GM stakes in Delphi and Ally Financial. Take out the one time charges, and the company is posting Earnings Before Income and Taxes of $2 billion, about what analysts expected.

Many analysts believe that, nearly two years after emerging from bankruptcy, GM is on fairly solid ground.

"They're looking pretty good," said Jim Hall, managing partner for the consulting firm 2953 Analytics. "They've got costs down to a manageable point. That will be better as the year goes on."

General Motors was criticized at the start of the year for spending more on incentives than its competitors. But, the company has posted significant sales increases every month this year, and has now been able to ease off on the incentive.

"Because other automakers failed to respond in kind, GM's incentives created a short-term boost in sales that at least partially offset the increased costs," said Edmunds.com CEO Jeremy Anwyl, in a statement issued by the company. "GM has the potential to put another billion dollars or two on the bottom line next quarter by further cutting incentives while capitalizing on the impending market share shifts during the traditional summer boom."

General Motors has several new products that are doing very well in the marketplace including the new Chevy Cruze small car. The Chevy Equinox and Buick Lacrosse remain strong performers.

"The have a product range that's never been better, with some pretty significant stuff set for launch in the next year," said Hall. "They are in a position where they are strong and getting stronger."

GM says it's in far better shape to deal with this year's gas price increase, than it was back in 2008, when a spike in gasoline prices started a cascade of events that lead to GM's bankruptcy.

"It's not just having a small vehicle on offer," says CFO Ammann. "It's about having a very high quality small vehicle. What we're seeing is consumers are quite happy to downsize, but they don't want to downsize to a low quality, or low feature car."

Wall Street seems to be sensing better things for General Motors. Its stock has recovered, after—at one point---falling below $30 a share.

In the coming months GM will face economic headwinds from rising gas prices, and possibly slower sales, industry wide. But, many analysts feel the company can deal with the challenges.

"For GM, first quarter was good but second quarter should be better," commented Edmunds.com Senior Analyst Jessica Caldwell. "GM has already dropped incentives spending below $1000 per car for some models, and the inventory crunch and busy summer selling season are still ahead of us."

Later this month, the treasury department will be able to start selling its remaining stake in General Motors. It's expected to take a close look at today's earnings report as decides exactly when it would be best to put that stock on the market.

There have been persistent reports that the government would like to be out of both General Motors and Chrysler before the 2012 election.

While former CEO Ed Whitacre had said he wanted the government out as soon as possible, current CEO Dan Akerson has been very cautious with his comments, saying that it's the government's decision.

Jim Hall of 2953 Analytics says we shouldn't expect an immediate bump in GM sales as soon as the government divests itself of its final stake in the company.

"One of the concerns I have is that the people who say they won't buy a product because of the 'Government Motors' veneer are people who may not buy anyway."

Follow Jeff Gilbert on Twitter @jefferygilbert