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GM Picture Brightens as Sales Rise

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GM Picture Brightens as Sales Rise


General Motors Co. appears to be making progress in the first quarter, benefiting from savings won in bankruptcy court, an improving economy and firmer pricing.

At the same time, the U.S.’s largest car maker has seen sales rise and is on track to produce 75% more vehicles in the first quarter in North America than a year ago.

Some analysts believe GM could come close to breaking even in the first three months of the year—a milestone after years of major losses.

“They have been able to take out billions in fixed costs and, once they get over that break-even point, there is going to be a lot of cash flowing in,” said Morningstar Inc. auto analyst David Whiston. “I would expect them to be profitable very soon.”

Last week, GM Chief Financial Officer Chris Liddell said the company has a “reasonable” chance of becoming profitable in 2010, and a “remarkably strong” balance sheet. In January, Chairman and Chief Executive Edward E. Whitacre Jr. predicted the company would report a profit in 2010, and said he hoped that would be on a net basis.

GM still faces many challenges. Sales in Europe are down this year and the company is attempting a costly and politically difficult restructuring of its German-based Opel unit. In the U.S., sales are rebounding but not as fast as those of competitors such as Ford Motor Co.

The company still has to repay the remaining $5.7 billion of $6.7 billion in cash loans from the U.S. government. And while production is up compared to a depressed 2009, it is still way below that of earlier this decade.

The company won’t release financial details on the first quarter until later in the year. In the next few weeks, it will provide a delayed report on its performance in the fourth quarter of 2009. Those data are expected to show GM burned through billions of dollars in cash in the three months, in part because it started repaying loans from the U.S. and other governments.

GM also likely struggled in the fourth quarter to boost revenue after exiting bankruptcy as sales remained depressed in many regions.

GM is under pressure to start making money after undergoing its federally financed reorganization. The U.S. invested $50 billion, most of which was converted into equity. The U.S. Treasury is GM’s largest shareholder, owning a 60% stake.

The fourth-quarter figures will be based on so-called fresh-start accounting that applies to the company after exiting Chapter 11. GM must adjust its debts and assets to reflect their fair-market value. Such adjustments can alter depreciation and amortization levels, and usually have a substantial, positive impact on a company’s balance sheet.

The reorganization allowed GM to shed billions of dollars in debt owed to its chief union, bondholders and other lenders. In addition, GM eliminated thousands of jobs, closed several plants, dropped hundreds of U.S. dealers and set plans to shut down or sell four of its eight brands. It emerged from bankruptcy with $17 billion in debt, down from $70 billion before it filed.

The company also is saving billions a year that used to spend paying interest on its now-reduced debt and funding retiree health care expenses, which are now covered by a union trust.

With the U.S. economy beginning to recover, GM is seeing higher sales. In the first two months of the year, it sold 287,850 cars and light trucks in the U.S., up 13% from a year ago, although Ford’s sales in the same period were up 34%.

GM plans to produce 650,000 vehicles in the first quarter, up 75% from the year-ago period. That’s important because auto makers report revenue when they build vehicles and ship them to dealers.

Firmer pricing is also helping GM. It estimates its vehicles on average sold for about $3,500 more in 2009’s fourth quarter than in the same period in 2008.

Jerry Seiner, a dealer in Salt Lake City, said the Buick LaCrosse sedan goes for $30,000 to $40,000 these days, as much as $7,000 more than a year ago. The remodeled vehicle comes packed with features, helping drive up its price. “It was hard to get them to sell at all” before, Mr. Seiner said.



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