GM’s Akerson: $7.6B profit a ‘solid performance’

February 17, 2012
GM’s Akerson: $7.6B profit a ‘solid performance’
/ The Detroit News
General Motors Co. may have posted a record profit of $7.6 billion for 2011 Thursday, but the Detroit automaker acknowledges that its turnaround is far from complete.
The company continues to lose money in Europe, where declining demand has left GM with too many workers and too much production capacity. Closer to home, its underfunded pension fund — the largest of any American corporation — remains a serious concern for long-term investors.
General Motors is aware of these problems. And rather than patting himself and his team on the back for increasing earnings more than 61 percent over 2010’s total, CEO Dan Akerson spent much of the day Thursday talking about how GM planned to fix them.
“Obviously, we still have a lot of work to do in some areas,” he told analysts and reporters during a conference call following Thursday’s earnings announcement, which he characterized as “another step in the right direction.”
Akerson’s most immediate concern is Europe, where a deepening economic crisis is eroding demand for new cars, and socialist governments historically have stymied the automaker’s efforts to downsize. GM’s CEO said that has to change.
“We have to match capacity with demand, and demand has been falling,” Akerson said. “We have to restructure the company for long-term profitability and sustainability. We’re looking at everything in order to achieve a lower break-even point and scale.”
European results weak
GM said much the same thing last year. After deciding not to sell its money-losing German subsidiary, Adam Opel AG, the GM said it had a plan to restore it and the rest of the company’s European units to profitability. But GM reported a net loss of $600 million for the last three months of 2011 Thursday — almost the same result as a year before.
“That plan was built around a more robust European economy than we face today,” said GM CFO Dan Ammann. “It did not go far enough.”
Ammann said GM’s European results were “simply unacceptable” and promised to move move rapidly to address these issues. GM said major actions would be announced within the next couple of months.
“We will work with all of our stakeholders — including the unions and governments of every country — to do what is required to fix this business,” Ammann said, later telling reporters that all of the parties understand what is at stake.
“Everybody wants to work for a successful, profitable, growing enterprise,” he said. “As was demonstrated here in the U.S., a growing business is what creates jobs, a profitable business is what allows reinvestment for the future and that’s the dynamic we’re going to get going over there.”
Work not finished
But even in the United States, GM says its work is not finished.
While GM’s North American division made $1.5 billion in the fourth quarter, almost doubling the $800 million it reported for the same period in 2010, the percentage of its mammoth U.S. pension obligations that remain unfunded grew to 89 percent from 88 percent a year ago.
Ammann said the company is making progress. It convinced the UAW to move all new hires to defined-contribution, or 401(k), plans, and on Wednesday announced it is doing the same with all U.S. salaried employees, starting in October. He said GM will not stop there.
“We have a number of things that we’re still looking at,” Ammann said, including offering voluntary pension buyouts for current retirees. “We’re not ruling anything out.”
As for the 2012 outlook, Akerson said GM will stay the course it set when he took over as CEO in September 2010. “We continue to systematically execute our plan, which includes investing in new products … and growing in emerging markets,” he said.
While analyst reaction to Thursday’s numbers was generally favorable, some on Wall Street complained about the lack of specific details about the next moves in Europe and elsewhere.
“No meaningful restructuring details (were) provided, which creates an overhang,” said Michael Ward of Sterne Agee.
GM shares closed up $2.24 — a gain of nearly 9 percent.
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Hourly workers get $7,000 on March 2
General Motors Co.’s record annual profit is good news for U.S. employees, most of whom will get either profit-sharing checks or bonuses. Some 47,500 hourly workers represented by the United Auto Workers will get checks for about $7,000 March 2. That’s more than Ford workers, who got about $6,200, and Chrysler workers, who got about $1,500.
GM also said its 26,000 U.S. salaried employees would receive bonuses Feb. 29. The amount will be based on the employee’s job level, salary, individual performance and GM’s performance worldwide. All salaried employees will get 86 percent of the maximum amount they are entitled to, based on the automaker’s performance last year.
On Wednesday, GM said it is retroactively increasing bonus payout percentages for white-collar workers, low-level managers and middle managers for 2011. Higher-ranking managers will see similar increases next year. It also is freezing their traditional, defined-benefit pension plans Oct. 1 and moving all U.S. salaried employees to 401(k)-type plans.

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