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GM posts first profit in 3 years

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GM posts first profit in 3 years

But analysts are concerned about losses in Europe

Robert Snell / The Detroit News

Detroit -- General Motors Co. posted its first quarterly profit in almost three years Monday, thanks to improved sales and a historic bankruptcy filing that helped the automaker shed billions of dollars in liabilities and lower its break-even point.

But looming risks could slow the company's push for sustained profitability.

The most pressing obstacle is GM's European operations, which lost $500 million in the first three months of the year and could continue to struggle amid flat sales, Greece's debt problems and market instability. GM does not expect to break even in Europe until next year at the earliest.

In addition, GM faces a potential cooling off in vehicle sales in China's fast-growing market and tightening credit in China, Brazil and Australia.

But those pitfalls were overshadowed Monday by the $865 million first-quarter profit and the rebound in GM's home turf of North America.

The critical North American market had sucked billions in profits generated overseas in recent years and precipitated the automaker's slide into bankruptcy.

GM's North American operations posted a $1.2 billion pre-tax profit during the first quarter, compared with a $3.4 billion loss in the fourth quarter of 2009.

The profit is a key step toward GM's ability eventually to sell shares of the company to the public, repaying taxpayer loans and breaking free of government ownership.

"It was an extremely good first quarter for General Motors and an important step as we work to rebuild," Vice Chairman and Chief Financial Officer Chris Liddell said Monday. "There is no reason to say that we shouldn't be pushing for profitability in North America on a consistent, sustained basis."

The first-quarter results, including a $1.2 billion pre-tax profit in GM's international operations, did not prompt company executives to alter their view on launching an initial public offering of company stock, or IPO. Liddell said an IPO is possible later this year or next, citing the volatility of the equity markets.

GM's financial position has improved to the point that the automaker already returned unused taxpayer loans to repay the government $6.7 billion. But taxpayers are still on the hook for $43 billion in aid that was swapped for a 61 percent majority stake in GM.

The government cannot start cashing in that stake until GM launches its IPO.

"The IPO will happen in good time, when the company's ready and when the market's ready," Liddell said.

He said he would "still be reasonably cautious" about how the automaker will fare the rest of the year.

Another unknown that could affect the timing of an initial public offering is Wall Street's appetite for additional automotive company equity, said analyst Joe Phillippi of AutoTrends Consulting in Short Hills, N.J.

"There are issues with respect to how much capacity there is to take on additional auto stocks," said Phillippi, who has polled a small sample of Wall Street portfolio managers. "There is a lot of skepticism -- not about GM, just whether the market in aggregate can absorb that much automotive equity."

The positive financial results released Monday coincided with a dramatic increase in production. GM built 668,000 vehicles from January through March, 80 percent more than a year earlier.

Operating income was $1.2 billion during the first quarter, when GM posted revenue of $31.5 billion, a 40 percent increase. GM also generated $1 billion in free cash flow during the quarter.

GM's last quarterly profit came in the second quarter of 2007, when it earned $891 million.

The company's stint in bankruptcy court last summer helped lower GM's break-even point as the automaker shed brands, factories and slashed thousands of jobs.

GM's U.S. market share fell to 18.4 percent in the first quarter from 20.2 percent at the end of last year along with a slight dip in share from 18.6 percent to 18.1 percent for its core Chevrolet, Buick, GMC and Cadillac brands.

Auto analyst Erich Merkle of Autoconomy.com in Grand Rapids expects GM to continue to lose market share this year, though at a slower rate, as it eliminates Saturn and Pontiac brands and as some of those owners migrate to non-GM vehicles.

"That is certainly going to give them the lion's share of market-share losses this year," Merkle said. "They've got some great products that are being well-received, but GM needs to quicken the pace of new products, and I don't see that happening until 2012."

From The Detroit News: http://www.detnews.com/article/20100518/AUTO01/5180331/1148/auto01/GM-posts-first-profit-in-3-years#ixzz0oHdiicYK

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