General Motors Posts Largest Annual Profit Ever, Despite Lackluster Fourth Quarter
Despite a disappointing fourth quarter, General Motors posted its largest annual profit ever Thursday, reporting 2011 earnings of $7.6 billion just two and a half years after emerging from bankruptcy.
The strong annual figure is likely to boost investors, employees and small businesses that rely on GM for their livelihoods. But the news belies the fact that GM is still saddled with government ownership that isn't likely to go away anytime soon.
The U.S. government still owns almost 30 percent of GM's stock, which it cannot unload until shares hit $51. On Thursday, even after posting its best financial news in a decade, GM's shares were just $25.98 in early morning trading.
Still, the company's healthy annual profit may help bolster Michigan residents looking for an upside. The Michigan economy is slowly recovering from the near demise of GM and Chrysler in 2008 and 2009; experts say many people are waiting for more solid signs that the automakers have turned the corner before making large investments.
The earnings news could hurt former Massachusetts Gov. Mitt Romney's chances in the Michigan Republican presidential primary, scheduled for Feb. 28. In a Detroit News op-ed Tuesday, Romney criticized the auto bailout and said the industry would have fared better had the government hadn't intervened.
At the time of GM's bankruptcy in 2009, industry watchers predicted the company would enjoy a strong, quick comeback. By slashing its debt, moving healthcare responsibilities over to the union to handle, cutting workers and plants and trimming back its brand lineup, they said, the company would have so dramatically cut costs that the slightest improvement in U.S. sales would result in massive earnings.
On Thursday morning, as local news broadcasters announced GM's earnings report with smiles, Romney's television ad criticizing the auto industry ran during nearly every commercial break. The ad asks, "How in the world did an industry and its leaders and its unions get in such a fix that they lost jobs, that they lost their future?"
GM earned $472 million in the fourth quarter, after earning billions in the first, second and third quarters of this year. Most of its fourth-quarter revenue came from North America.
The automaker's European Opel division, which it has struggled to effectively restructure, lost $562 million in the fourth quarter and a loss of $747 million over the year. GM is also losing money in South America, where it posted losses of $122 million for 2011.
But those losses aren't enough to negate GM's success in the U.S., its most important market. By several measures, consumer acceptance of the company's products are up. Sales were up 13.2 percent over last year, according to industry tracker TrueCar, and average transaction prices are up 3.7 percent. The company is also relying less on incentives to lure customers in and cutting the average rebate by 5.1 percent.
"In our first year as a public company, we grew the top and bottom lines, advanced our global market share and made strategic investments in our brands around the world," said Dan Akerson, chairman and CEO of General Motors, in a press release. He added that there are plans to "make GM a far more efficient global team. This includes reducing our break-even level in Europe and South America and driving higher revenues around the world."
To that end, GM needs to embark on yet another Opel restructuring, said Barclays Capital analyst Brian Johnson. The company needs to close plants, cut workers, slash material costs and force suppliers to charge less for parts. But those plans will take time, Johnson said, because Europe's strong unions need to sign off on any deals before they can be implemented.