After suffering through years of enormous losses and one of the biggest bankruptcies in U.S. history, General Motors Co. (NYSE: GM) yesterday (Thursday) posted its first annual profit since 2004.
The Detroit automaker said it earned $4.7 billion in 2010, compared with a $21 billion loss posted by the current GM and its pre-bankruptcy predecessor in 2009.
"Last year was one of foundation building," Chairman and Chief Executive Officer Dan Akerson said in a statement. "Particularly pleasing was that we demonstrated GM's ability to achieve sustainable profitability near the bottom of the U.S. industry cycle, with four consecutive profitable quarters."
The results marked the end of a $90 billion losing streak that started in 2005, stretched through 2008, and then climaxed with the American automobile icon tumbling into bankruptcy in 2009.
Net income for the fourth quarter was 31 cents a share, Detroit-based GM said. Profits were 52 cents a share, excluding a charge for purchases of preferred shares from the U.S. Treasury Department.
The results topped the 44 cents average estimate of analysts surveyed by Bloomberg News. Revenue rose to $36.9 billion, also exceeding the $34.6 billion average estimate. The company reported $135.6 billion in sales for the entire year.
The turnaround comes after the bankruptcy and a massive bailout by the federal government, which loaned the company $50 billion in exchange for a 61% ownership stake.
In the restructuring that followed, GM slashed debt, cut payrolls, closed outdated factories, shed product lines and reduced health benefits and other expenses by renegotiating union contracts. The changes allowed GM to trim the cost of building a vehicle by several thousand dollars.
But U.S. taxpayers are still the automaker's largest shareholder, holding roughly 500 million shares for a 27% stake of the company. It remains to be seen whether they will ever recoup their investment.
Shares of GM, which went public at a price of $33, closed Wednesday at $34.59. The government will have to sell its remaining shares at an average of price $53 to make taxpayers whole.
GM's global sales jumped 12.2% to 8.39 million vehicles in 2010, within shouting distance of retaking the world's largest automaker title from Toyota (NYSE ADR: TM), which sold 8.42 million.
For the first time in its 102-year history, GM sold more cars and trucks in a foreign market than in the United States. Sales in China jumped 28.8% from 2009 to 2.4 million, while U.S sales came in at 2.2 million, up only 6.3%.
"Their recovery has been fueled by significant cost-cutting, arrival of new products that consumers were seeking along with better management of incentives and supply," Jesse Toprak, vice president of industry trends and insight at TrueCar.com, which tracks the auto industry, told The New York Times. "The sky is the limit for GM after becoming profitable at this low of a sales pace."
The company's turnaround is also the result of revamping its product line in 2010.
As part of its restructuring, GM closed or sold the Saturn, Pontiac, Hummer and Saab brands. Meanwhile, it unveiled a string of hot-selling new models, including the Chevrolet Cruze, the Buick LaCrosse and the Cadillac SRX SUV.
"While GM still has some work to do in terms of improving their product lineup, the current offer of GM vehicles is the most balanced and highest quality they have ever had," Toprak told the Los Angeles Times.
GM also benefited from finding ways to rein in spending on sales incentives and making price increases for its vehicles stick.
Spending on incentives fell more than 5% to an average of $3,397 per vehicle, while the average transaction price in 2010 was $34,149, a 7% increase from 2009. Both of those figures outperformed the industry average, according to TrueCar.com.
GM ended the year with $27.6 billion in cash and $4.6 billion in debt. The company reduced its under-funded pension obligations in the United States to $11.5 billion, down from $16 billion a year earlier.
GM employees stand to reap a big payout. Approximately 45,000 union workers will receive $4,300 in bonuses. About 26,000 salaried workers in the United States will receive from 4% to 16% of their pay as bonuses, and several hundred white-collar employees will get more than 50% of their pay.
GM also resolved a significant accounting concern, announcing that its board and management team have concluded that the company had fixed material weaknesses in its financial reporting process.
If the automotive market continues to improve as expected, 2011 "should be a better year" than 2010, Christopher P. Liddell, GM's chief financial officer, told the NYT.
"Our focus for 2011 is to build on our progress and continue to generate momentum in the marketplace," Liddell said. "We expect our first quarter will be a strong start."
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