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GM powers back to profit

Bouncing back: GM's world headquarters are housed within the aptly-named Renaissance Center in Detroit.

Good Q1 result sparks speculation of General Motors public stock sell-off

General Motors logo19 May 2010

GENERAL Motors has recorded its first quarterly profit since its near-death experience in the global financial crisis, prompting speculation that the American giant might launch a public stock offering within the year to begin paying back United States and Canadian taxpayers who own a combined slice of more than 70 per cent of the ‘New GM’.

The $US865 million ($A1.01b) profit in the January-March quarter marked a dramatic turnaround on the first quarter of 2009 when a massive $US6 billion ($A7b) loss tipped America’s biggest motor company over the edge into Chapter 11 bankruptcy.

Coming off a $US4.3 billion ($A5b) operating loss for its first six months as a newly formed company to December 31, GM’s latest result also lifted the mood at its Detroit headquarters, as reflected in a speech by GM North America president Mark Reuss who told a fleet conference in Detroit this week: “We have turned a profit, we are financially stronger and we have the best balance sheet we’ve had in as long as anybody can remember.

“It’s cleaner than a maternity ward.”

 center imageLeft: GM North America president Mark Reuss.

And while GM says it has paid back its US government loans, with interest, it still needs to restore its ownership to public hands.

Under the terms of the rescue package last July, the US treasury took a 60.8 per cent share of the New GM stockholding in return for $60 billion in financing.

The remaining chunk of the company was shared by the United Auto Workers union (17.5 per cent), the Canadian government (11.7 per cent) and GM bondholders (10 per cent).

But the arrangement was made on the proviso that the government stockholdings would be sold off into public hands at the earliest opportunity.

Reports from the US suggest work has already started on plans for an ‘initial public offering’ of shares, but that is unlikely to be made public until GM has recorded at least two quarters of solid profits.

First-quarter revenues were up 40 per cent to $US31.5 billion, thanks to the improving car market in the US and abroad, especially Asia.

Europe remains the problem child, with the Opel/Vauxhall operation losing more than $500 million for the quarter.

However, GM ended the first quarter with $35.7 billion in cash and marketable securities.

GM vice chairman and chief financial officer Chris Liddell said GM was adding production to keep up with strong demand for new products in the company’s four brands in North America.

“We’re also steadily growing in emerging markets, keeping our costs under control, generating positive cash flow and maintaining a strong balance sheet,” he said. “These are all important steps as we lay the foundation for a successful GM.”

While GM is bouncing back, across-town rival Ford is also kicking goals, gaining a credit rating upgrade from investment agency Moody’s on its $65 billion in borrowings.

The rating for Ford Motor Co and Ford Credit was raised to B1 – the fourth level below investment grade – after sustained growth in sales this year, a full-year profit and large cuts in costs.

Ford has cut its workforce almost by half in the past five years under the reign of CEO Alan Mulally.

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