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Today, GM shows if overhaul paid off

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Today, GM shows if overhaul paid off

BY TIM HIGGINS

FREE PRESS BUSINESS WRITER

If GM posts a first-quarter profit today, as some have suggested, it would be the company's first quarterly profit since 2007, and it would signal that the automaker's historic trip through bankruptcy is helping GM regain its footing.

It won't have come without pain and sacrifice. The past year has been filled with management changes, dealer closures, brand eliminations and job cuts as the Detroit automaker worked to lower its costs and become more competitive.

Now, positive signs are in the air: Sales are up and new vehicles, such as the Buick LaCrosse, are doing well.

The next big goal for GM is to take the company public so that the taxpayers can try to recoup their investments in the company.

In order to have a successful public offering, "you have to have momentum," said Rebecca Lindland, an industry analyst with IHS Global Insight. "What this needs to translate into is a trend of positive news coming out of the company."

Increasing sales, production bode well for turnaround

Several signs are pointing to good news from GM -- but whether it's a profitable first quarter or not remains to be seen.

Steven Rattner, former head of the Obama administration's auto task force, suggested last week that GM could post a profitable first quarter.

Chairman and CEO Ed Whitacre already told employees in a memo last month that January, February and March would show solid operating results.

Chief Financial Officer Chris Liddell similarly hinted to reporters last month that GM's financial picture was looking strong, saying the company has a chance at profitability "at least at the operating level" this year.

"There's nothing in the first quarter ... that changes my opinion," he said at the time.

Between its emergence from bankruptcy on July 10 and the end of 2009, GM lost $4.3 billion. On an operating basis, meaning earnings before interest and taxes, GM was $600 million shy of breakeven during the fourth quarter, Liddell said.

The first-quarter financial results, to be released early today, will give perhaps the clearest look at how GM is doing following its 40-day trip through bankruptcy last summer.

"It's important that there is positive news, and it's important that it's clear-cut news," Stephanie Brinley, an industry analyst with AutoPacific, said.

Turmoil and traction

Late last month, GM said it made its final $5.8 billion in loan payments to the U.S. Treasury and Canadian governments. That news was greeted with some jeers from those who noted that taxpayers really will not get paid back until GM goes public and the governments' stakes in the automaker can be sold off.

The U.S. owns 60.8% of GM while Canadian governments own 11.7%. The UAW retiree health-care trust holds 17.5% and old GM bondholders are to get 10%.

Other automakers already have posted strong January-March results. Ford recorded a $2.1-billion profit and Toyota, struggling with global recalls, saw a $1.2-billion profit.

But, unlike those companies, GM is less than a year out of bankruptcy reorganization.

GM's bankruptcy turnaround plan, according to GM's experts, predicted the company would make $1.6 billion in 2010 on an operating basis.

The Whitacre whirlwind

But that plan was crafted before Whitacre arrived on the scene as CEO. He took over the reins as chief executive in December, after Fritz Henderson left, and quickly shook things up.

Rebecca Lindland, an industry analyst with IHS Global Insight, said positive news on Monday could help boost company morale. "At the upper echelon, there's been a lot of shifts and a lot of changes and a lot of instability and that can make people at the lower tiers pretty afraid," she said.

Twelve of the company's top 13 executives are new to GM or in new roles at GM since July.

Despite the turmoil, there have been positive signs of traction at GM:

• GM sales in China increased 67.9% during the first quarter.

• GM sales in the U.S. are up 14% through the end of April compared with the same period last year.

• Several new vehicles, such as the Buick LaCrosse and Chevrolet Equinox, have been hits.

Production plans hint at profits

GM has announced plans to boost production of some of its hot sellers.

GM built about 668,000 vehicles in North America during the first quarter, up from 371,000 during the same quarter a year earlier.

Although GM has stopped giving guidance on its future production plans, Brian Johnson, an industry analyst with Barclays Capital, has estimated that GM will boost production in the second quarter by 78% to 700,000 vehicles, compared with the depressed volumes during the same period last year as GM went through bankruptcy.

Joseph Phillippi, a longtime industry analyst, said GM should be able to post positive results for the first quarter, given the company's reduced cost structure and stepped-up production during the first few months of the year.

"They get paid as soon as the vehicle comes off the back end of the plant," he said. "That will definitely help the bottom line."

link:

http://www.freep.com/apps/pbcs.dll/article?AID=/20100517/BUSINESS01/5170324/1210/GM-shows-if-overhaul-paid-off&template=fullarticle

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