GM Pushes Around Gov. Money, Earns First Profit Since 2007

General Motors reported a Q1 2010 profit of $865 million, its first profit in three years, today. GM paid back $8.2 billion in loans from the US and Canadian governments last month. The automaker is still 61% owned by the US Treasury, but expects to buy it out later this year when it goes public again. The New York Times has more:

G.M. has been able to improve its performance even as industry sales remain weak largely because it shed a significant amount of its debt during the six weeks it spent in bankruptcy protection starting in June 2009.

From July to December, G.M. lost $4.3 billion, mostly because of the cost of settling with the United Automobile Workers union over retiree health benefits, but it had positive cash flow of $1 billion. Prior to bankruptcy, G.M. was rapidly depleting its cash reserves and could have run out of money within months had the government not stepped in.

G.M. said revenue was up 40 percent, to $31.5 billion, and it had positive cash flow of $1 billion.

The results show that G.M. is on track to become a public company again as soon as the fourth quarter, allowing the government to recover more of the billions of dollars it spent preventing G.M.’s collapse.

BusinessWeek has a good overview of GM’s loan repayment:

…the majority of the government’s $50 billion investment is tied up in the Treasury’s 61% ownership in the company…GM won’t be able to pay the remaining $40 billion of the government’s investment until the company launches its planned initial public stock offering, which could happen in the fourth quarter. The $8.4 billion was just the debt portion.

The other critical point is that the $50 billion investment in GM was, in retrospect, more than the company needed. The Treasury Department gave GM a big slug of cash in case there was a double dip in the recession or if wary consumers really fled the company’s brands. As the car market got a boost and some of GM’s new models sold well, it was clear that GM didn’t need all of that cash. So GM just paid back the $8.4 billion in debt with government money.

In GM’s case, profit equates to cleverly pushing money around. GM, it seems, is once again gaining traction in the public mind. If that happens, GM has a better chance of basing its profits on more traditional means gaining even more sales–once it goes public again later this year.

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  1. spencer's Gravatar Comment by spencer on May 17th, 2010 at 1:06 pm

    The key point that the government forced on GM was to force it to eliminate excess capacity so that it could be profitable in the US in a year when auto and light truck sales were around 10 to 12 million. Previously, GM needed domestic auto sales to be on the order of 15 to 16 million for it to sell enough cars to turn a domestic profit. This is why GM is now profitable.

    Ford had already done the restructuring to bring its overhead into line with the smaller market but Chrysler was in a position similar to GM.

  2. Andrew Budd's Gravatar Comment by Andrew Budd on May 17th, 2010 at 2:26 pm

    “If that happens, GM has a better chance of basing its profits on more traditional means–sales”

    Could you please explain this? – the only thing GM does now is make cars and trucks, All of it’s revenue comes from the sale of cars and trucks to dealers. Please explain the implied “less traditional” method that generated the profits and cashflow.

  3. Jack's Gravatar Comment by Jack on May 17th, 2010 at 2:59 pm

    It was the right thing to do||||||||save those 3+ million people’s jobs! Go American OWNED GM! Please buy from American OWNED companies! Why send your hard earned bottom line dollars to Japan?

  4. Melkor's Gravatar Comment by Melkor on May 18th, 2010 at 9:42 am

    “In GM’s case, profit equates to cleverly pushing money around”…..ever read their balance sheet lately? Profit for GM here(800+ million) = operating profit from selling cars…not from cash infusion from the govt. They did push money around to pay the loans back, but that does not factor into profit or loss. Please be objective and precise when reporting.

  5. Andrew Budd's Gravatar Comment by Andrew Budd on May 18th, 2010 at 12:18 pm

    They pushed money around to pay the loans back???? – How is this any different from borrowing money from the bank because you think you might need it, later discovering that you don’t need it.. so you pay the loan off plus interest. Did you pay the loan back with the banks money? I don’t get the big fuss on either side of issue. GM pays back loan with the governments money???? – that’s what loans are – you borrow, you pay back BFD

  6. Drea's Gravatar Comment by Drea on May 19th, 2010 at 12:43 pm

    The point here is that the government gave GM too much money at the beginning. So when GM paid off around $8 billion of its loan, it was doing so with the excess the gov. had initially given it. That money, that loan repayment, had nothing to do with selling cars. Without this, GM would have had more debt (and interest fees). This is what is meant by pushing gov. money around.

  7. Andrew Budd's Gravatar Comment by Andrew Budd on May 19th, 2010 at 1:25 pm

    DREA – The reason they didn’t need all the money is because they are selling cars and trucks at a profit to dealers. There is sufficient cashflow from the sale of vehicles to fund operations so they didn’t need the additional cash on hand. In addition, I’m not sure you understand how Balance Sheets and Income Statements differ. Suppose GM did not repay the debt early. The balance sheet would have showed 8b in debt on the liability side offset by 8b in cash on the asset side which would have zero effect on net worth. The income statement for the quarter would have shown 3 months interest expense which would only reduce profit by the amount of the interest payment. The only thing that debt has to do with profit and loss is the expense incurred in servicing the debt. In short, the profit of 865 million is profit, whether they payoff the loan or not.

  8. Andrew Budd's Gravatar Comment by Andrew Budd on May 19th, 2010 at 1:31 pm

    To put this on a simple scale – You have a good job making $5000 per month. You have $10,000 in your savings account. You have a $5000 balance on your master card. You can payoff the mastercard from savings and have no debt, but you also no longer have 10K in cash in case of emergencies. No big deal so long as you continue your employment and your 5K per month is sufficient to cover your expenses.

  9. Andrew Budd's Gravatar Comment by Andrew Budd on May 19th, 2010 at 1:43 pm

    Also, there is much said about the 50 Billion. 8 billion is a loan which has already been paid back. The remaining 42 Billion is the purchase of 61% of the stock of a privately held company. Whether or not the stock purchase turns out to be a good investment remains to be seen. If GM can continue making 1 billion + per quarter, when the company goes public, it should bring nearly a 100 billion for 100%. Making the government’s share worth 61 billion. So the only people who end up with the short end of the stick are the previous stockholders who lost everything and the previous bondholders who may end up with 40 cents on the dollar. The government may actually win this one. Chrysler, is another story.

  10. Andrew Budd's Gravatar Comment by Andrew Budd on May 19th, 2010 at 1:46 pm

    By the way, the remaining 39% is owned by the Bondholders, The UAW Health Insurance Fund, and the Canadian Government

  11. Drea's Gravatar Comment by Drea on May 19th, 2010 at 6:09 pm

    Andrew: Ah, facepalm. You’re absolutely right. I wasn’t conceptualizing the balance sheet correctly, which led me to infer what I did. Thanks for explaining that in more detail. My multitasking got the better of me this week, it seems. When I finally took time to read what I’d written again, after reading your comment, I saw where I’d erred. I corrected the article. Interesting to know, also, about that other 39% of ownership.

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