GM Reports $2.16 Billion Profit Ahead of Share Sale

General Motors Co. reported third- quarter net income of $2.16 billion, in line with preliminary results given last week, as the largest U.S. automaker prepares for an initial public offering.

Earnings before interest and taxes rose to $2.28 billion from $2.03 billion during the previous three months of the year, the Detroit-based company said today in a statement. Revenue was $34.1 billion.

Chief Executive Officer Dan Akerson, who took over from Ed Whitacre on Sept. 1, has said GM can make “significant” profit even amid a U.S. auto sales rate that is running about 30 percent slower than before the financial crisis. The automaker, 61 percent owned by the U.S. government, reduced costs through bankruptcy and is selling new cars for higher prices.

“GM’s numbers were as advertised and they were good,” said Joe Phillippi, principal of consulting firm AutoTrends Inc. in Short Hills, New Jersey. “As they ramp up production -- assuming people like their cars -- in three to five years, they could be hitting some much bigger numbers.”

GM plans to raise as much as $10.6 billion by selling 365 million shares at $26 to $29 each, according to a Nov. 3 filing with the Securities and Exchange Commission. The company also will offer about $3 billion of preferred shares that later will become common stock. GM has said the offering may price as soon as Nov. 17.

North American Operations

The automaker’s North American operations had profit before interest and taxes of $2.13 billion, a 33 percent increase from the second quarter’s $1.59 billion. GM said production in the region rose 33 percent to 707,000 vehicles, including a 51 percent gain in truck output.

“They’ve grown in emerging markets and they continue to do well in emerging markets, but North America was the anchor that took them into bankruptcy,” Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan, said yesterday in a telephone interview. “How North America goes, so goes GM.”

GM is telling prospective investors that it can earn $19 billion before interest and taxes if U.S. vehicle sales return to previous highs of around 17 million a year, said two people familiar with the presentation. U.S. light-vehicle sales peaked at 17.4 million in 2000.

Europe Loss

Earnings before interest and taxes at GM’s international operations slipped 3.9 percent from the previous quarter to $646 million. The loss in the automaker’s European operations widened to $559 million before interest and taxes, more than triple the $160 million in the three months ended June 30. GM Europe lost $1.2 billion on an Ebit basis in three quarters this year.

“We know we have much more work to do,” Akerson, 62, said today on a conference call. “We still need to fix Europe. We continue to be vigilant in reducing cost in the enterprise, and we have just started doing a better job in marketing our brands to consumers.”

The automaker generated $2.62 billion in cash from operations and said it ended the quarter with $33.5 billion in cash and marketable securities.

GM’s $34.1 billion in third-quarter revenue compares with $25.1 billion in a year-earlier period that was nine days shorter because the company was in bankruptcy.

Fourth-Quarter Outlook

While earnings before interest and taxes will be positive in the fourth quarter, they will be “significantly lower” than the run rate in the first three quarters of the year, Akerson said on the call.

GM said in its Nov. 3 regulatory filing that Ebit would be lower than prior quarters because it will be building a different mix of vehicles and engineering costs for future models will be higher. GM is introducing the Chevrolet Volt gas- electric car and Chevy Cruze compact during the quarter.

The company and its Chinese joint ventures are on pace to sell 2 million vehicles this year in the world’s largest auto market, GM said last week. GM’s partnerships, which include SAIC Motor Corp. and Wuling Group, earned $1.1 billion of equity income net of tax this year through Sept. 30.

GM will pay $51 million in cash and provide technical services to raise its stake in Wuling to 44 percent, the company said today in an updated filing of its IPO prospectus.

BRIC Share

The automaker emphasizes its presence in Brazil, Russia, India and China in its IPO roadshow. GM says it has a 13 percent consolidated market share in the so-called BRIC markets. Volkswagen AG is second at 11.1 percent, according to GM. BRIC markets are forecast to increase deliveries by 13.9 million by 2014, according to IHS Global Insight data.

“From what we’re hearing, the roadshow has gone really well,” Geoffrey Tirman, president of Talisman Capital SA in Chexbres, Switzerland, which manages $110 million, including bonds that will convert into GM shares. “My guess is there will be a lot of secondary demand in the market, especially if they keep the IPO priced low.”

GM’s U.S. sales rose 6.6 percent to 1,818,274 through the first 10 months, helped by demand for the Buick LaCrosse sedan as well as the Chevrolet Equinox and Cadillac SRX sport-utility vehicles, according to researcher Autodata Corp. Industrywide sales rose 11 percent in the same period.

The average transaction prices on the LaCrosse, Equinox and SRX in the third quarter increased $7,500, $3,900 and $900, respectively, from the second quarter of 2009, GM said in a presentation to investors related to its IPO.

GM has reduced U.S. hourly labor costs to an estimated $5 billion this year, from $16 billion in 2005, Chief Financial Officer Chris Liddell said in the roadshow presentation.

Pensions Obligation

The company’s pension obligation was $29 billion as of Sept. 30, according to a regulatory filing today. The obligation was $26 billion as of June 30. The increase was due mostly to lower discount rates, the company said.

GM dropped an underwriter for its IPO and preferred share offering after one of the bank’s employees sent an unauthorized e-mail to potential investors that may have violated securities laws, according to the filing today. GM didn’t identify the underwriter.

UBS AG of Zurich, listed as an underwriter in GM’s preliminary filing on Oct. 28, was the only bank to be omitted from its subsequent filings since the automaker set the terms of its sale on Nov. 3. Kelly Smith, a UBS spokeswoman, declined to comment.

If regulators determine that the e-mail constituted a violation of the Securities Act of 1933, GM may be liable for damages from buyers of the IPO or preferred offering that received the message, today’s filing showed.

General Motors Financial Co., the finance unit that GM acquired last month, said yesterday net income almost doubled to $51.3 million in the three months through Sept. 30, from $25.8 million a year earlier.

To contact the reporter on this story: Craig Trudell in New York at ctrudell1@bloomberg.net; David Welch in Southfield, Michigan at dwelch12@bloomberg.net.

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net.

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GM CEO Dan Akerson

Jeff Kowalsky/Bloomberg

GM Chief Executive Officer Dan Akerson has said GM can make “significant” profit even amid a U.S. auto sales rate running about 30 percent slower than before the financial crisis.

GM Chief Executive Officer Dan Akerson has said GM can make “significant” profit even amid a U.S. auto sales rate running about 30 percent slower than before the financial crisis. Photographer: Jeff Kowalsky/Bloomberg

Nov. 10 (Bloomberg) -- Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC, discusses the high-yield corporate bond market. LeBas, speaking from Philadelphia with Deirdre Bolton on Bloomberg Television's "InsideTrack," says that while risk is "creeping up" in the high-yield bond market it won't be as "problematic" as once feared. (Source: Bloomberg)

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