Strong profits on new cars and trucks helped General Motors earn $2 billion US in its third quarter, enhancing the company's appeal as it nears next week's initial public stock offering.
The third-quarter earnings of $1.20 US per share nearly match what the U.S. automaker made in the first two quarters of the year combined. The bottom line was aided by profits from overseas and healthy revenue from North America, the company said Wednesday.
The earnings were boosted by higher prices on newly introduced models such as the Buick LaCrosse, a midsize luxury sedan.
They were also another indication of a widespread recovery among global automakers. Toyota, Honda, Nissan, Chrysler and Ford all reported improved results in the most recent quarter as auto sales slowly rise.
The strong quarter meant GM met projections it made a week ago that net income for the period would be $1.9 billion to $2.1 billion US.
It was the third-straight profitable quarter for GM, which needed more than $60 billion US in government aid to make it through bankruptcy protection last year. The company has repaid or plans to repay American and Canadian taxpayers $8.1 billion US in loans, while the U.S., Canadian and Ontario governments hope to get back their remaining $53 billion with the Nov. 18 offering of common stock and several follow-up sales.
The latest results reversed a $908-million US loss, or 73 cents per share, in the third quarter of last year, a short quarter for GM because it spent the first nine days in bankruptcy protection.
The Detroit automaker posted $34.1 billion US in revenue for the July-through-September quarter, up 35 per cent from the $25.1 billion US in the shortened period last year. GM had said last week that revenue could reach $34 billion US for the quarter.
Revenue has been steadily increasing this year, largely due to gains in North America and explosive sales growth in China.
Execs flog IPO
The third-quarter earnings come in the middle of a two-week "road show" in which GM executives are fanning out to U.S. and European money centres to sell investors on the upcoming IPO. The positive third-quarter performance should help them make their case.
But investors likely will have questions about how GM will handle increasing competition that's coming in the U.S. for several key GM models. For example, the new Chevrolet Cruze compact now is the newest car in its class in the U.S., but Ford, Honda and others soon will unveil strong new products.
Another problem that surfaced in GM's earnings report: Its global market share fell to 11.5 per cent from 11.9 per cent in the third quarter of 2009.
In the stock sale, four of GM's five owners — the U.S. government, the Canadian and Ontario governments, and a union health-care trust — will sell 365 million shares, or about a quarter of the company's outstanding common stock, for between $26 and $29 a share. The IPO will raise about $10 billion for the three owners and allow the largest, the U.S. government, to reduce its stake in the company from 61 per cent to just over 40 per cent.
But at those prices, the governments will not be on track to recoup their billions in bailout money. Canada and Ontario will earn about $550 million and $275 million US from the stock sale, respectively, in exchange for a total of 2.1 per cent of the company — putting them on pace to lose a combined $4.5 billion US if share prices don't rise.
The reduced government stake is nevertheless symbolically important for GM, because some Americans resented the company's taxpayer-funded bailout. The perception that GM stood for "Government Motors" has hurt the company's car sales, GM has claimed.
The U.S. Treasury will sell 264 million shares and will make about $7 billion US in exchange for 17.5 per cent of the company if the shares sell in the middle of the $26 to $29 price range.
GM also plans to raise $3 billion US by selling 60 million preferred shares for $50 US each. The preferred shares pay a set dividend and become common stock in three years. GM will use the money to shore up its pension plans and pay debt.
For the first nine months of the year, GM made $4.2 billion US, a dramatic turnaround from the gigantic losses of previous years. In the four years before the 2009 bankruptcy, GM lost more than $80 billion US because it was saddled by enormous debt and costly labour contracts.
But the debt was dramatically reduced and labour costs were cut in the government-funded restructuring, and now GM is smaller and leaner. The automaker also cut four brands to focus precious marketing dollars solely on Chevrolet, Buick, Cadillac and GMC.