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Published: 2/17/2012 - Updated: 2 months ago

General Motors posts record profit of $7.6B

Union employees will get bonuses up to $7,000

BY JON CHAVEZ
BLADE BUSINESS WRITER

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DETROIT -- Just two years after it was rescued and reconstituted through bankruptcy and a government bailout, General Motors Co. cruised through 2011 to post the biggest profit in its history.

The 103-year-old company, leaner and smarter under new management, cut costs by taking advantage of its size around the globe.

The company's performance in North America and Asia helped it earn $7.6 billion for the year. That was 62 percent higher than the $4.7 billion it earned a year ago and nominally more than GM's previous record of $6.7 billion set in 1997.

The numbers were so good that 47,500 blue-collar workers will get profit-sharing checks in March under their new union contract.

Word that workers will be getting profit-sharing checks of as much as $7,000 each was good news for Toledoan Robin Marr, who has worked nearly 30 years at General Motors Co.'s Toledo Transmission plant, also known as GM Toledo Powertrain.

"I could put that to some good use, like pay some bills. And maybe a little shopping, just a little bit," she said with a laugh.

Another worker at GM's Toledo plant, Raymond Fisher of Ypsilanti, Mich., said he planned to use the money to "pay some bills."

With nearly 1,600 hourly workers at Toledo Powertrain, the profit-sharing money at the plant could total more than $11 million for the area. Under GM's profit-sharing plan, workers get a maximum payout of $7,000 based on 1,850 hours worked annually. Those who work fewer hours will get less.

The profit-sharing money is the same for employees at both levels of the two-tier pay system, in which newer hires make less than veteran employees.

But Ms. Marr and Mr. Fisher said preserving jobs was more important to GM workers than profit-sharing.

"It feels good. It feels good just to have a job," Mr. Fisher said.

Ms. Marr said those such as Republican presidential candidate Mitt Romney who said that GM should have been allowed to fail -- instead of being rescued through a federal loan bailout -- don't understand the devastation such failures could have caused in communities like Toledo.

"I'm happy that [General Motors] has been able to turn it around. But the basic thing is, this is about keeping the economy going and keeping jobs in the United States," she said.

Had GM not been saved, "what would have happened not only to General Motors, but all of the other companies in this surrounding area -- the business, the restaurants, the shopping centers?" Ms. Marr said. "When we don't work, they don't work. That's the most important thing. We want to keep our economy alive, and without GM it would have devastated the local economy."

Ken Mayland, an economist with ClearView Economics in Cleveland, said the profit-sharing will provide a nice boost for workers and for many small businesses in the Toledo area -- although how much of a boost is hard to say.

"When people get a windfall like that, some portion will be saved but a lot of people have been holding back. So you have pent-up demand," he said.

"It's going to mean more traffic in the car showroom, a little more traffic at the malls because obviously we've gone through some tough times," Mr. Mayland said. "This is really newfound dough, so probably more than a few people are going to cut loose a little bit."

GM's foundry in Defiance, Ohio, employs about 1,100 workers, so that city also will benefit. The tax coffers of Toledo, Defiance, and the state of Ohio also will be slightly fuller after the checks arrive in March.

Ray Wood, president of UAW Local 14, which represents union workers at the Toledo Transmission plant, said he has heard from a few employees who plan to use their profit-sharing checks on purchases they have been putting off for several years.

"I'm already hearing talk of washers and dryers, or 'My refrigerator has been on the brink and I need a new one,' " Mr. Wood said.

But he added that workers at the plant aren't taking the bonus for granted because they were humbled three years ago when it looked like their company might go bankrupt.

"We always remind our membership at our meetings that it was just three years ago -- in March, 2009 -- that President Obama told GM they had 60 days to get its act together and to come up with sacrifices from everybody involved. And they were tough sacrifices," Mr. Wood said.

"Three years ago we had no idea whether we were going to survive or not," he said.

So GM's turnaround and the announced profit-sharing are about more than money, Mr. Wood said. "It absolutely vindicates the second chance our work force was given … to continue making quality products."

The record profit won't stop the debate about spending $49.5 billion in taxpayer dollars to save GM. But it did drive up the company's stock price, which could help the government get more of its money back.

General Motors stock closed at $27.17 a share Thursday, up $2.24.

That's good news for the U.S. government, which still owns 26.5 percent of the company and needs more strong earnings to push up the stock price.

The government owns 500 million shares of GM, which it got in exchange for the $49.5 billion bailout. Through earlier stock sales and loan repayments, the government has recouped about $22.3 billion of that money. The remaining shares would have to almost double in price and sell for around $53 for the government to get back the rest.

The company's revenue for the year increased 11 percent to $150.3 billion and earnings before interest and tax were $8.3 billion compared with $7 billion in 2010.

GM performed best in its home territory, posting a $7.2 billion pretax profit in North America.

International operations, which includes Asia, made $1.9 billion before taxes, but that was down from 2010.

The full-year results were hampered by Opel, GM's European unit, which lost $747 million -- a $1.3 billion improvement but still the 12th-straight annual loss in that market.

"Clearly, we have work to do in Europe and South America," Dan Ammann, GM's chief financial officer, told reporters Thursday morning.

Chief Executive Officer Dan Akerson hinted at an even better year for GM in 2012, saying the company will build on the 2011 results as it brings more products into the market.

The company said it trimmed costs by $500 million in the fourth quarter alone mainly by consolidating advertising agencies and engineering operations. A prediction that costs wouldn't rise this year wowed investors, especially since other automakers have forecast rising costs, said Itay Michaeli, an analyst for Citi Investment Research.

"That was a very pleasant surprise," he said.

GM also was optimistic about sales and revenue. It sees its global market share holding steady at 11.9 percent, and if global auto sales rise as expected this year, GM's slice of that would increase.

That's especially promising since GM managed to make money last year with industry-wide sales in the United States at a historically low 12.8 million. Sales this year could rise to 14 million. The company expects to charge more for its cars and trucks this year, but warned prices could be pressured as the market shifts toward smaller, less-expensive vehicles.

"The outlook here is quite favorable for earnings growth," Citi's Ms. Michaeli said. "They're keeping their costs really under control."

Losses in Europe dragged down the company's fourth-quarter earnings.

GM said it earned a quarterly profit of $472 million, or 28 cents a share, down from $510 million, or 31 cents a share, a year ago. It was the eighth-consecutive quarterly profit for the carmaker, but also the smallest during that stretch.

Information from The Blade's news services was used in this report.

Contact Jon Chavez at: jchavez@theblade.com, or 419-724-6128.

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