Gm Turns Its Back On Losses

February 11, 1994|By Ian Johnson | Ian Johnson,New York Bureau of The Sun

NEW YORK -- Reversing three years of numbing losses, General Motors Corp. reported yesterday that it earned $2.46 billion in 1993, capping the year with its first quarterly profit in its North American auto business since early 1989.

In 1992, the world's largest automaker lost $2.66 billion, excluding one-time charges last year that added another $20 billion in red ink.

For the three months that ended Dec. 31, GM made $1.18 billion, or $1.28 a share, compared with a loss of $652 million, or $1.25 a share, for the same period a year earlier.

The most dramatic results came in GM's North American Operations, the corporation's keystone, accounting for 65 percent of sales. The segment turned a profit of $427 million in the October-December period, compared with a $1.78 billion loss for the same period a year earlier.

"The financial turnaround [in the North American division] is remarkable," GM Chief Executive Officer John F. Smith Jr. said. "We're encouraged by the trend, but we can't be satisfied until the earnings power of our operations in North America is fully restored. That remains critical to GM's future."

For the 1993 calendar year, North American Operations lost $982 million, compared to a $5.67 billion loss for 1992. Excluding interest costs and special charges, the operations turned a modest profit of $362 million in 1993 -- meeting one of the pledges made by Mr. Smith when he was hired 15 months ago to replace fired CEO Robert Stempel.

Company officials said GM's fortunes have risen thanks to a booming auto market and job cuts that eliminated 40,000 positions last year. The company is in the midst of a five-year plan to shut 24 parts and assembly plants in the United States. GM has a minivan plant on Broening Highway in Southeast Baltimore, but it has not been targeted in the cutbacks.

Strong auto sales have allowed GM to reduce rebates. Incentives averaged $900 a vehicle last year, compared with $1,080 for 1992, said Chief Financial Officer G. Richard Wagoner.

Wall Street and auto industry analysts were encouraged by the news, although they pointed out that GM still has several major hurdles to leap before it can be as efficient and profitable as its domestic and foreign rivals.

As if to reinforce the feeling of skeptical approval, Wall Street knocked GM's stock down a peg yesterday, with the share price dropping $1.75, to $62.50, after closing at a record high of $64.75 on Tuesday. Yesterday's drop came despite GM's earnings being about 40 percent higher than Wall Street's consensus forecast.

"They exceeded expectations but didn't blow people away," said Jeff Schappe, an analyst with Conseco Capital Management. "I think Wall Street was hoping to be blown away like it was with Chrysler, and when it didn't happen, some people took profits."

Three weeks ago, Chrysler Corp. stunned Wall Street with record earnings that far exceeded expectations. On Wednesday, Ford Motor Co. stock suffered a fate similar to GM's -- its robust profits were overshadowed by expectations of a Chryslerlike profit bonanza, and Ford's stock fell.

Skepticism about GM's prospects beyond the current auto-selling boom hinged on several points. The company is still not making cars that are as good as those made by Ford or Chrysler, industry watchers said, and will not have its new cars on the market until past the cyclical peak of the domestic car market.

In addition, GM still has a pension plan that is underfunded by $22.3 billion. The company has proposed putting $5 billion of one class of its stock in this fund, but this would still leave it with a

huge obligation.

The company reported a profit in Europe despite the weak economy. Profits for its international operations dropped $300 million last year, to $1.23 billion.

But as Europe recovers, GM should benefit from its strong presence there, said Thomas Galvin, an analyst with C. J. Lawrence. As long as the domestic market holds up, GM's stock could rise in the coming two years, he said.

"GM is changing aggressively, but they've still got a couple of decades of mismanagement to unwind," Mr. Galvin said. "They've made a tremendous improvement, but it'll still take a couple of years before they catch up to Ford and Chrysler."

To receive, by fax, a free copy of General Motors' 1993 earnings, dial Sunfax at (410) 332-6123. After you hear the introduction, enter the information number 5885.

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