General Motors Posts Q3 Profit of $1.5 Billion, off -$200 Million. Ideologues Out in Full Force for Halloween and the Election

“We are going to keep playing offense with growth products like the Chevrolet Onix, Opel Mokka and Cadillac ATS and continue to systematically address business risks,” said CEO Dan Akerson.

General Motors Co. (NYSE: GM) today announced third quarter net income of $1.5 billion, a drop of -$200 million from the same period in the prior year. This works out to $0.89 per share including special items, which reduced net income by $100 million and cut earnings per share by $0.04. In the third quarter a year ago, GM’s net income was $1.7 billion or $1.03 per share. The results represent GM’s struggles but a continuing turnaround, particularly in view of Q1 of 2009 when GM lost almost -$10 per share, and was circling the rim of the commode.

In spite of claims – critics say deliberately false – from the repudiated Republican right about the successful auto bailout, GM is not going bankrupt. GM’s debt-to-equity ratio at 0.36 is better than Ford at 5.8 and Toyota at 1.0, and only one-quarter of the overall auto industry average, and it now has more than $37 billion in liquidity. GM in the context of the current travails of the global auto industry is performing reasonably well. A bumper sticker says it all – GM is alive and Bin Laden is dead.

GM is also not transferring jobs out of the U.S., at least by any reasonable global corporation standard. In an unusual move GM has now publicly taken on the Romney Campaign – “let automakers go bankrupt” – which appears desperate in Ohio with its latest series of ads based on false statements claiming GM is moving 15,000 jobs out of Ohio.

GM and Chrysler in strongly worded employee and media communications have criticized the ads as inaccurate. GM, “cynical campaign politics at its worst”; Chrysler on Romney ads attacking Jeep for moving jobs to China, saying “unnecessary fantasies and extravagant comments.” Nobody, thus far, has pointed out that a predecessor corporation of American Motors, which Romney’s father ran, moved Jeep production to Japan, and South America among other nations after World War 2. The offshore manufacturing – it was a good strategy –  continued under George Romney’s running of American Motors. 

U.S. taxpayers still hold 32% of new GM stock, of course, and are owed $32 billion for the $50-billion bailout in 2009. The stock is currently trading in the $24 range and needs to rise to more than $52 per share for the government to breakeven. A prudent strategy at this point is for the U.S. Treasury to hold on, and for political hacks to stay away from commenting on the auto business, which they know nothing about. (1)

(How voters will view this and all the other far larger bailouts in November comes down to political and ideological viewpoints and their place in the U.S. economy.  <See: AIG Bailout of $182 Billion Paid Back. Taxpayers make at least $12B or Taxpayers to Turn Profit from Controversial TARP Bailouts > The facts say the U.S. economy is stronger today because of the bailout strategy our legislators adopted. And maybe it won’t happen again under the tepid financial reforms now being put in place under fierce opposition from the same Wall Street people responsible for the financial crisis and Great Recession. To supporters these were the crucial milestones on the road to economic recovery. Critics say the government should have stood back and let the failed markets sort themselves out in 2008, a distinctly dubious proposition bordering on fantasy given that the private capital markets were frozen with fear of lending to any firm let alone over-leveraged firms.)

During Q3 GM sold 2.281 million vehicles, up 100,000 year-over-year due primarily to record sales in China, the world’s largest auto market. (Ford and GM Set China Vehicle Sales Records in September) GM’s global market share stands at 11.6% in its estimation, with Toyota very close to it for the Number One spot. Because of GM’s vehicle sales, cash flow was $3.2 billion, and more importantly free cash flow was $1.2 billion, up from $300 million in Q3 of 2011.

Criticisms that auto companies are making vehicles in China or transferring jobs there are at best ignorant of, or deliberately ignore, Chinese industrial policy, which requires local partners and production for access to the market. There are also high Chinese tariffs on imports that effectively restrict volume exports of the kind that are now coming out of, say, South Korea under the U.S. Korean FTA. (I can only imagine the outcry if Mercedes-Benz was required to partner with the city of Detroit to build cars there – the ruling party in Detroit controlling the jobs – as a condition of access to the U.S., one of the world’s most lucrative luxury car markets. This is a requirement in China.)

GM Europe lost -$500 million on its way to an EBIT-adjusted 2012 calendar year loss of -$1.5 to -$1.8 billion; no surprise there for anyone with even a tenuous grasp on economic reality. Shareholders can expect about the same result in 2013. Still, GM claims Europe will achieve breakeven by mid-decade after having lost billions there during the last one. (September EU Vehicle Sales Drop 11%. Eurozone Crisis Unabated)

“We are starting to see some green shoots in the mud of Opel,” claimed Steve Girsky, vice chairman of GM during an earnings call with media. (His eyesight must be better than mine.) In a major step – at least for GM – Girsky said that Opel is no longer building vehicles without dealer orders. Company and dealer-owned inventories were cut by more than 100,000 units from February, with an additional 20,000 planned by year-end. This adds to a 47% reduction in company-owned stock, it was claimed. Girsky also said Opel would introduce 23 new models and 13 new engines by 2016 as it continues to seek union agreements on plant closings.

Perhaps of more interest is GM’s declining performance in North America, whose share dropped to under 17% as the company tries to balance inventories, reduce incentives, and improve retail share and brand image as a way of increasing profitability. (General Motors September U.S. Vehicle Sales Up Slightly) During Q3 GMNA reported EBIT-adjusted earnings of $1.8 billion compared with $2.2 billion a year ago. GM has a range of fresh cars – Cruze, Sonic, Malibu and Impala, Verano, ATS, XTS, SRX – along with major redo of  its profitable pickup trucks – Silverado and Sierra, and a new Corvette – coming next year. therefore, North America merits close watching, to see if GM can increase sales and earnings in the face of resurgent Japanese automakers. (Next Generation Chevrolet Silverado Pickup to Debut in December)

GM International Operations reported EBIT-adjusted of $0.7 billion compared with $0.4 billion a year ago. With Q3 sales of 857,000 vehicles, 665,000 of them in China, it’s fair to say GMIO is China. Moreover, for the record GM sells more vehicles in China than any other automaker, and has for years.

GM South America reported EBIT-adjusted of $100 million compared with near breakeven results a year ago. Sales were 283,000, 183,000 of them in Brazil where GM and other automakers are grappling with a new government policies and taxes affecting the auto business.

GM Financial earnings before tax was $200 million, up slightly compared with a year ago. GM has yet to recover from its loss of GMAC, now Ally Financial, but is slowly getting back in the lucrative finance business, particularly leasing. (GM Bids on Ally’s International Auto Lending Business)

“While we still have a lot of work to do, especially in Europe, it is encouraging to see our results begin to reflect the discipline we are bringing to bear on the overall business,” said CFO Dan Ammann.

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(1) From the Congressional Budget Office Report – October 2012: General Motors (GM) and Chrysler, along with their associated financing intermediaries, received just over $79 billion in TARP funds. In addition, the federal government offered to guarantee $5 billion in loans to parts manufacturers for GM and Chrysler; only $413 million of such loans was actually disbursed, however, bringing the total assistance to the automotive industry to nearly $80 billion. About $37 billion of that amount remains outstanding. The total subsidy cost for that assistance will be $20 billion, in CBO’s estimation.

GM and Chrysler. Following the bankruptcy proceedings of GM and Chrysler, the Treasury agreed to exchange the debt positions it held in the original companies for a blend of debt, equity, and preferred shares in the newly configured companies—“New GM” and “New Chrysler”—that emerged after bankruptcy. Since then, the Treasury has recouped roughly $31 billion of the $61 billion invested in the two companies through repurchases of debt and preferred stock, as well as the sale of common stock; the Treasury has also written off or realized $7 billion in losses on its investments in GM and Chrysler. The government retains about 33% of New GM’s equity and almost $1 billion in debt obligations of “Old GM,” which remains in bankruptcy as Motors Liquidation Corporation. The Treasury has no remaining investment in Chrysler, having sold all of its shares on July 21, 2011, for $560 million.

Financing Intermediaries. The Treasury provided $19 billion in financial assistance to GMAC (General Motors Acceptance Corporation) and Chrysler Financial, of which about $15 billion remains outstanding. On March 2, 2011, the Treasury sold nearly $3 billion of referred shares of Ally Financial (formerly GMAC); the remainder of the $17 billion investment in that company consists of $6 billion in preferred stock and ownership of 74% of the company’s equity. In addition, Chrysler Financial received $1.5 billion in assistance, which it fully repaid on July 14, 2009.