General Motors turns first profit since 2004

Bob Moon Feb 24, 2011

General Motors turns first profit since 2004

Bob Moon Feb 24, 2011


Kai Ryssdal: American capitalism is a rough and tumble place. One need look no further than General Motors today to see that’s true. GM posted its first annual profit since 2004 this morning. The $4.7 billion it earned for all of last year was its biggest profit in more than a decade. An impressive turnaround by any measure.

And yet, GM shares traded below the price at which they went back on the market in November. Investors are casting a wary eye on a downward trend in GM’s earnings. And the benefits of bankruptcy protection the company enjoyed are giving way to the hard realities of a competitive and fickle marketplace.

Here’s our senior business correspondent Bob Moon.

Bob Moon: GM’s quarterly profits have actually been shrinking lately, not growing. And the CEO of the auto industry research firm Edmunds, Jeremy Anwyl, wonders if the fates will be as kind as they have been up to now. He says GM is increasingly focused on luring in customers.

Jeremy Anwyl: They’ve been ramping up their spending on marketing an incentives. Their incentives are pretty much leading the industry again, and that’s been crimping profitability.

GM commercial from 2009: Reinvention is the only way we can fix this, and fix it, we will.

GM is following through with the bold changes it promised in its advertising when it went bankrupt two years ago. But Anwyl says it’s a slow process.

Anwyl: Takes, you know, three or four years minimum to bring out a new vehicle. And they just had, out of necessity, to conserve cash — I mean, they were in survival mode. Now, of course, that’s a big problem, because they need new and exciting vehicles — that’s what moves in this marketplace.

The new focus on gas mileage has better positioned GM to deal with fickle customers if pump prices go up and stay there. At the University of Michigan, industry expert Bruce Belzowski credits tighter CAFE standards — Corporate Average Fuel Economy.

Bruce Belzowski: When the government took over at General Motors, they didn’t have a choice about what their product plan was going to be. The government said, we’re going for higher CAFE standards, and if you want to survive as a manufacturing company, you’re going to meet those standards.

But other industry observers doubt whether GM could meet a surge in customer demand right now for Chevy’s fuel-efficient Cruze and all-electric Volt. Bob Schulz watches the auto industry for Standard and Poor’s.

Bob Schulz: Clearly it is a work in progress, and you know there is a bit of a race there between evolving car line-up and where fuel prices go.

Schulz says there’s no question GM is better placed to be competitive in dealing with surging gas prices than it was in 2008. But he says GM remains heavily dependent on more-profitable light trucks.

I’m Bob Moon for Marketplace.

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