General Motors Q1 profit fueled by consumer incentives

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A high-rise office headquarters of General Motors.

GM's $3.2 billion in Q1 profits should have been better, critics claim. (Photo Credit: CC BY-ND/WJAdmin/Bankruptcy in the News)

General Motors’ financial recovery has continued in a big way through the first quarter of 2011, reports the Detroit Free Press. The automaker made $3.2 billion in profit over the past three months, capping its fifth straight profitable quarter and exceeding the average analyst prediction of $1.6 billion. GM profits included $1.5 billion resulting from the sale of stock in Delphi Automotive and lender Ally Financial.

General Motors beats Q1 2010 by 18 percent

The five consecutive quarters of profit by General Motors is the longest run of success for the automaker since an eight-quarter run from 2002 to 2004. CFO Dan Ammann told the Free Press he’s optimistic that the anticipated slowdown in the wake of the Japanese earthquake won’t impact sales or earnings severely.

“It’s good progress. It sets up a good foundation for the rest of the year,” he said. “Our purchasing and engineering teams have done a good job.”

Good, but not good enough?

While GM appears pleased with the company’s performance, some analysts question whether the automaker should be doing more. According to New York-based Jefferies & Co. analyst Peter Nesvold, the $4.72 billion gain in U.S. revenue should have translated into greater profits before interest and taxes.

“It was good but not good enough for the stock,” said Nesvold. “The big question is why GM is growing the top line without showing operating leverage.”

GM sales follow increased incentives

While General Motors increased U.S. sales by 24.7 percent over the quarter, auto industry critics point to an uptick in consumer incentive programs in January and February. Such programs were intended to get a jump on springtime offers other automakers are expected to extend. Pontiac and Saturn drivers looking to upgrade were also targeted.

The customer response to the GM incentive programs was larger than expected, which did little to change critics’ minds as to whether GM was using deals to secure market share.

‘Good growth’ in China

Globally, GM profits amounted to $36.2 billion, a 14.9 percent improvement over the previous quarter. GM Europe, which has lost money for 11 straight years, broke even in Q1 2011 and is expected to break even for the year. GM gained $90 million in South America, although the automaker still lost two share points because it had made $265 million the year before. In China, GM lost ground – from $900 million in Q1 2010 to $600 million last quarter – but Ammann still considered the performance “good growth.”


Detroit Free Press

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