Can taxpayers rejoice in GM's profits?
The automaker reports its largest profit in more than a decade, but that doesn't mean the bailout was a success.
GM's road to recovery has been funded largely by the U.S. government. With these results, maybe the $49.5 billion bailout wasn't such a bad thing?
Not so fast. Taxpayers are still on the hook in a big way, and GM needs to do much more to sufficiently repay its rescue.
Even with today's solid results, GM shares fell by 6% in midday trading to $32.51 -- below their November IPO price of $33 a share. Why the sharp drop? We'll get to that in a minute.
The U.S. government recovered $13.5 billion from the IPO, bringing its total return to $23 billion. The government now owns 26.5% of GM (it had owned 61% before the IPO) and plans to sell its remaining shares. But in order to just break even on its investment, it needs to sell its remaining shares for an average of $53 each.
Post continues after video:
That's a lot to ask of the stock, even after today's results. GM's fourth-quarter profit was $510 million, or 31 cents a share. Adjusting for a $400 million charge tied to the purchase of U.S. Treasury preferred shares, GM's per-share profit was 52 cents -- higher than the 44 cents analysts expected. Fourth-quarter revenue was $36.9 billion, beating the $34.6 billion analysts had expected.
GM didn't impress analysts as much with its full-year performance, reporting profit of $4.7 billion, or $2.89 a share. Analysts had hoped to see a $5.2 billion profit. But hourly workers in Detroit cheered that profit heartily, as they'll see an extra $4,300 each from the company's profit-sharing program.
So after all this good news, why is GM's stock down today? There are several reasons:
1. The Middle East. There's only one direction for oil prices to take if the chaos in Libya and the Middle East continues. And that could hurt GM's truck sales, although the company hopes to compensate with the small cars it's introducing this year. "Energy is going to be more expensive," chief executive Akerson said on the earnings call. "We have prepared for that. We are going to have to react."
2. The fourth quarter. Profit was way down in the fourth quarter as GM ramped up spending on new cars, including the Chevrolet Volt plug-in and the Cruze compact. GM spent $1 billion more on marketing and engineering in the quarter than in the previous three months, BusinessWeek reported.
3. The government. Those big sell-offs of the remaining secondary shares held by the Treasury are coming.
4. Raw materials. Costs are climbing for steel, rubber and aluminum, and automakers across the board are going to have a hard time managing those. "If we see weakening in demand with continued commodity pressure, it might become more difficult to pass those costs along," one analyst told BusinessWeek. In other words, say goodbye to offers of cash back and low financing.
5. Europe. GM is still flailing in Europe, losing $568 million there in the fourth quarter and $1.8 billion for the year, MarketWatch reported.
The story is changing for GM, one investment manager told Reuters. It's "shifting away from the trauma and pain of 2008 and 2009 and to 'How do they compete in a very competitive marketplace?'"
GM is still union controlled and they cannot make the cars with enough profit margin with rising commodity prices for GM to be able to dig out of the whole they are in. You cannot keep running a company the same way and expect different results.
To the article saying why GMs stock went down. The excuses listed are bull.
Ford didnt drop like GM did today. And guess what?
Ford is losing money in Europe as well
Fords 4th quarter earnings didnt meet expectations GMs did.
Raw Materials are used in Fords vehicles as well.
The government and its shares of GM stock arent something thats going to be an issue for a while. GM has said it will probably be 2012 when they release the rest of the governments stock. So to say people were thinking about that today is pure stupidity and a flat out lie.
The middle east wont affect GM that much at all. GM has the Sonic due out soon and its going to be the most fuel efficient sub-compact. The Cruze is the most fuel efficient compact. The Equinox/Terrain is the most fuel efficient crossover. The Acadia/Traverse/Enclave is the most fuel efficient in its class. the Sierra/Silverado are the most fuel efficient trucks (the claim by Ford is a lie the 22 MPG is in their 6 cylinder truck the 22 MPG GM has is in the V-8.)
GM has the most fuel efficient true vehicle on the planet in the Volt (The Leaf cannot be driven more than 50 miles from ones home therefore its cannot be considered as an all around vehicle that can go on trips.)
Sunny outlook Union labor has NOTHING to do with GMs profits or losses. That statement shows you have no ties to Detroit, the big 3, or GM itself.
Why did GM tank and need chapter 11?
Everyone blames labor. GM had over 50% of the US market before Roger Smith single handedly RUINED GM. Are you aware that University of Michigan product has been rated the worst CEO in corporate American history?
The UAW workers have NOTHING AT ALL to do with the quality of the vehicles. They get the parts and put the vehicles together. Roger Smith was a bean counter that went on cost cutting sprees everywhere. The engineers (THE GUYS THAT DESIGN THE PARTS THAT ARE DELIVERED TO THE FACTORY) were told to leave gaps in dashboards, use cheaper materials, etc.
Throw in the fact that back in the 70s you couldnt build 7 vehicles on 1 line and you get why there are soo many retirees. Each vehicle needed its own assembly plant and each plant needed a lot of workers. Today 1 person puts a windshield in, it used to take 3 people. Same for doors.
Why does this help the foreign brands? They didnt have plants here before the technological advances. They are JUST NOW building plants in the US. GM has been here since the 1900s, and the techological advances have required less workers. Thing is a lot of the retired GM workers from the 60s and 70s are passing away and when those legacy costs are gone GM will be in prime position to make money hand over fist.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
New legislation is allowing foreign companies to finally invest in the country's vast oil reserves.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.