Wednesday, October 30, 2013

General Motors: Shareholder Gains & Bailout Pain

Shares of General Motors (GM) are driving higher today after the U.S. automaker reported better than forecast earnings.

Agence France-Presse/Getty Images

The Wall Street Journal has the details on General Motors’ earnings beat:

The No. 1 U.S. auto maker Wednesday reported a profit of $1.72 billion for the July to September period, before the payout of preferred dividends, compared with $1.83 billion a year earlier. Wall Street, however, focused primarily on the 96 cents a share GM earned excluding some charges. That beat the average analyst estimate of 94 cents a share. Revenue rose to $39 billion from $37.6 billion.

Sterne Agee’s Michael Ward calls General Motors’ results “solid.” He writes:

North American auto operations earned $2.2 billion in pretax income; European losses improved owing to cost performance; and cash flow was better than expected. In our view, all boxes were checked positive…GM's third quarter earnings performance was better than expected and increases our level of conviction for the remainder of 2013 and 2014 performance.

General Motors reported earnings just hours after the U.S. government said it had lost money on its bailout of the automaker during the financial crisis. Bloomberg reports:

The Special Inspector General for the Troubled Asset Relief Program in a report issued yesterday estimated the realized losses on all GM shares sold from November 2010 through Sept. 13, 2013, at $9.7 billion. At that point, the U.S. owned 101.3 million shares. If it sold those for yesterday's closing price, the government would lose about $760 million more, bringing the total loss to about $10.5 billion.

That might be a small price to pay, however, considering what a collapse of the U.S. auto industry would have meant. Bloomberg again:

The auto rescue saved 1.14 million jobs in 2009 at automakers and companies that depend on the industry, according to the Center for Automotive Research. A collapse would have reduced personal income in the U.S. in 2009 and 2010 by $96.5 billion, costing the federal government $28.6 billion in extra jobless benefits and reduced Social Security contributions and income taxes in those years, the center said.

Shares of General Motors have gained 3.7% to $37.41 at 10:57 a.m., while Ford Motor (F) has dropped 0.2% to $17.48 and Toyota Motor (TM) has advanced 1% to $130.18.

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