Market Place: After Profit, G.M. Faces Rough Road

DETROIT, March 14 — For General Motors, there was some positive news to report Wednesday: the automaker said that it earned a profit in the fourth quarter, that cost cuts had progressed faster than planned and that its losses plummeted in 2006.

On the other hand, it still lost $2 billion last year, the second consecutive year of multibillion-dollar losses. The mortgage business of its finance arm needs an infusion of cash because of loans to subprime lenders. And some analysts fear that G.M.’s pipeline of new products is not adequate to sustain its turnaround.

As a result, after the company announced its largest quarterly profit in two and a half years, its shares fell 26 cents, to close at $30.25.

For G.M., which is perhaps months away from losing to Toyota of Japan its long-held title as the world’s largest automaker, 2006 was both a cause for celebration and an affirmation of the long road ahead.

According to figures released Wednesday, G.M. had a fourth-quarter profit of $950 million, the most it had earned since the second quarter of 2004. The loss of $2 billion for the year compared with a restated loss of $10.4 billion in 2005, when the company began its overhaul by detailing plans to close nine plants and eliminate more than 30,000 hourly jobs.

Excluding one-time items like payments to employees who took buyout packages and costs related to the bankruptcy filing of its former parts division, the Delphi Corporation, G.M. earned $2.2 billion last year. Revenue was a record $207 billion, up from $195 billion in 2005.

Another round of G.M. data is expected to be released Thursday, when the company promises to file its annual report with federal regulators. That action — and the release of fourth-quarter financial results on Wednesday — come six weeks later than the automaker had intended, the result of complexities in the sale of a controlling stake in its finance arm, the General Motors Acceptance Corporation.

In North America, the focus of G.M.’s turnaround, the automaker earned $50 million, although that falls to a loss of $14 million when earnings considered to be one-time items are excluded.

G.M.’s chief financial officer, Frederick A. Henderson, acknowledged that the company’s performance in North America was “still not an acceptable level,” despite considerable improvement.

“We’ve managed to come back from very large losses to running North America at virtually break-even,” he said. “That’s not the stopping point. We need to kick it into the next gear and move it into the black.”

G.M. reduced its fixed costs in North America by $6.8 billion in 2006, surpassing its goal of $6 billion. It plans to cut those costs by at least another $2.2 billion in 2007.

The company’s North American operations lost $4.6 billion in 2006, including about $3.8 billion it spent on buyouts and other one-time items. Net earnings improved by $5 billion over 2005.

Sales continued to slide in the United States, particularly of lucrative pickup trucks and sport utility vehicles. G.M.’s overall market share fell to 24.1 percent in 2006, from 26 percent the previous year, according to the Autodata Corporation, an industry statistics firm in Woodcliff Lake, N.J.

“Our largest concern is cash generation in North America,” Jonathan Steinmetz, an automotive analyst with Morgan Stanley in New York, wrote in a note to clients. “In that business, where the company is still not generating sustainable cash flow, we see product getting better near term and costs coming down. But without a health care solution and with the product portfolio peaking in mid-2008, auto cash flow is likely to remain muted.”

G.M.’s chief executive, Rick Wagoner, conceded that much work remained, saying, “Nobody at G.M. is declaring victory.”

But in a statement released with the quarterly results Wednesday morning, he described the figures as “validation that our strategy is working, and faster than many people thought possible.”

Micheline Maynard contributed reporting.

Tag Cloud

External Information

Additional Information

Where Am I?