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GM swings to surprise profit in first quarter

General Motors posted a profit for the first time in nearly three years, surprising Wall Street and increasing political pressure on the automaker to launch a public stock offering so the federal government can recover billions of dollars it spent on GM's bailout.

After 10 consecutive money-losing quarters, GM said Monday it swung to a better-than-expected profit of $865 million in the first quarter, bolstered by the improving U.S. economy and a massive restructuring that allowed the automaker to shed vehicle brands, factories and workers.

The profit contrasted sharply with a loss of $6 billion in the same period a year earlier. GM said revenue rose 40 percent to $31.5 billion for the quarter.

The quarterly results represented a major turnaround for a business that almost didn't survive the recession and have fueled hopes that GM could be back on Wall Street for a stock offering later this year.

Sustained profits are seen as crucial for GM's ability to float a stock offering to repay some of the $52 billion the federal government has poured into the company over the last year. The bailout made the government GM's biggest shareholder, owning 61 percent of its stock. The automaker, which had racked up more than $86 billion in losses since 2005, exited from a bankruptcy reorganization July 10.

"There is a political aspect that the government wants to get out of its GM stake as quick as it can, especially if it can recoup somewhere near the dollars invested," said Kenneth Elias, an industry analyst and partner at Maryann Keller & Associates.

But GM's still-recovering finances and tenuous capital markets could still leave taxpayers far from a way out. "With the market as volatile as it is now," a financial exit "would not be available to them today," said Kirk Ludtke, an analyst at CRT Capital Group in Stamford, Conn.

But that doesn't mean GM couldn't use some other method to partially pay back taxpayers between now and the November elections. If it generates enough cash, it could issue a special dividend to shareholders — including the government — or it could repurchase a portion of the government's holdings, he said.

Such a move would be welcomed by the Obama administration, which wants to demonstrate progress in getting taxpayer money paid back, he said.

Some analysts remain skeptical. James Schrager, professor at the University of Chicago Graduate School of Business, said GM has a history of making boastful claims, only to disappoint. In April, GM repaid the balance of its $6.7 billion loan from the federal government, along with smaller loans from the Canadian and Ontario governments. It aired commercials featuring its chief executive, Edward E. Whitacre Jr., highlighting the loan repayment, but many, including some members of Congress, accused GM of misleading consumers into thinking all the money it received from the U.S. Treasury had been repaid. "I'm delighted that they're not losing buckets of money, but a modest profit is a long way away from righting the ship," Schrager said.

GM executives worked Monday to cool the growing ardor for a stock offering. "I am trying to keep expectations low on this topic. It will happen when the company is ready and the markets are ready," said Chris Liddell, GM's chief financial officer.

Information from the Associated Press and New York Times was used in this report.

GM swings to surprise profit in first quarter 05/17/10 [Last modified: Monday, May 17, 2010 10:11pm]
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