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GM Declines to Lowest Since Initial Public Offering on Rising Oil Prices

(Corrects net income in sixth paragraph of story published Feb. 24.)

General Motors Co. (GM) fell to the lowest since its initial public offering in November as rising oil prices dimmed the outlook for truck sales after the largest U.S. automaker’s most profitable year since 1997.

GM slid $1.57, or 4.5 percent, to $33.02 at 4:15 p.m. in New York Stock Exchange composite trading. The shares earlier fell as low as $32.05, less than the $33 initial offering price in November.

Chief Executive Officer Dan Akerson is speeding the development and introduction of new models, including more fuel- efficient cars that may sell better as gas prices rise. GM used larger discounts and sales incentives in January and February to lure buyers before vehicle introductions pick up in 2012.

“The worst-case scenario is that GM uses pricing to get them through this gap in new product they’re in, and then you combine that with oil spiking,” Nicholas Colas, chief market strategist at BNY ConvergEx Group in New York, said in a telephone interview.

Crude oil for April delivery reached $103.41 today, the highest intraday price since Sept. 29, 2008, on concerns an uprising in Libya may reduce supply.

GM, which emerged from bankruptcy in July 2009, today reported fourth-quarter net income of $1.41 billion and $6.17 billion for 2010, the largest annual profit since its predecessor earned $6.7 billion in 1997. The full-year comparison excludes a $127.1 billion profit in the third quarter of 2009, when GM accounted for its post-bankruptcy recapitalization.

Fourth-Quarter Profit

Net income in the quarter was 31 cents a share, Detroit- based GM said today in a statement. Excluding a charge related to a purchase of preferred shares from the U.S. Treasury Department, profit was 52 cents a share. The average estimate of 13 analysts surveyed by Bloomberg was for profit of 44 cents.

Sales rose to $36.9 billion, topping the $34.6 billion average estimate. Revenue for 2010 climbed to $135.6 billion.

The drop in GM shares may be an overreaction to events in Libya and rising oil prices, said David Whiston, an equity analyst with Morningstar Inc. in Chicago. There was no fundamental change in GM’s performance that would scare investors away from the stock, he said.

GM increased fourth-quarter North American truck production 22 percent from a year earlier to about 463,000 units, while car production rose 2.1 percent to about 240,000 vehicles.

Truck Sales, Inventories

The inventory of trucks could be a concern if oil prices rise because of violence in the Middle East, said Whiston, who has a $46 target price on GM’s shares. Trucks and sport-utility vehicles accounted for 72 percent of GM’s U.S. sales last year, according to Autodata Corp.

Whiston said oil prices would have to stay elevated to change his outlook on GM.

“If this is temporary, I won’t change my valuation at all,” he said.

GM added U.S. market share in the quarter, helping it earn $5.75 billion in 2010 before interest and taxes in North America. Market share in its most profitable market held above 19.3 percent in each month during the quarter after sinking as low as 18 percent in September, according to Woodcliff Lake, New Jersey-based Autodata.

Akerson, who led GM through the IPO that raised more than $23 billion from common and preferred shares in November, said GM is better prepared for higher oil prices. The Chevrolet Volt plug-in hybrid and Cruze compact started deliveries last year, and the Sonic subcompact and Buick Verano small car are coming later this year.

‘Have to React’

“Energy is going to be more expensive,” Akerson said on a conference call. “We have prepared for that. We are going to have to react.”

Average regular unleaded gasoline prices in the U.S. rose 5 percent this year to $3.23 a gallon yesterday, according to AAA. Akerson said that consumers may start to shift their car buying preferences if gasoline reaches $4 a gallon.

GM had said fourth-quarter earnings would be “significantly lower” than earlier periods because of spending for new cars including the Volt and Cruze. Chief Financial Officer Chris Liddell told reporters that the results were at the “top end” of the company’s expectations.

GM spent about $1 billion more in the fourth quarter on marketing and engineering than in the previous three months, Liddell told reporters today in Detroit.

“Some of the factors that we talked about that were going to be in place in the fourth quarter will go away,” he said, adding that first-quarter earnings will improve on a sequential basis.

GM Europe’s Loss

GM repeated that it plans to break even in its European operations by the end of 2011. The pretax loss in the region widened to $568 million in the fourth quarter from $559 million in the third quarter. The full-year pretax loss was $1.76 billion.

Earnings before interest and taxes for GM’s international operations, which include China, fell to $334 million from $516 million in the previous three months.

GM paid down about $13 billion of debt and preferred shares last year and reduced its pension obligations by about $6 billion, Liddell said. The pension was underfunded by about $11.5 billion as of Dec. 31, he said.

Consumers paid an average of $33,793 for GM’s models during the last three months of 2010, up 14 percent from a two-year low in the third quarter of 2009 and the most for any period since then, according to online auto researcher Edmunds.com.

After reducing incentive spending last year, GM increased promotions in January to $3,663 per vehicle, according to Autodata. GM kept most of those deals in February and offered to forgive the last three payments of an existing lease for those customers.

Incentive Offers

The company made the offers as a loyalty incentive to existing customers, GM North America President Mark Reuss said on the company’s conference call. Some other programs targeted non-GM customers, and the company plans to be in line with industry spending on incentives over the longer term, he said.

“They were targeted things, and they worked,” Reuss said. “We have communicated with our dealers. They don’t expect any kind of consistent ride on that.”

GM said today profit-sharing checks for its 45,000 U.S. hourly workers will average $4,300, more than double the previous record for payout to unionized employees.

The company said a previously disclosed “material weakness” in its financial controls no longer exists as of Dec. 31. The company said in a filing related to its IPO that procedures and controls weren’t effective as recently as June 30.

GM had $82 billion in losses from 2005 to 2008 before tumbling into bankruptcy in 2009. The IPO in November lowered to 33 percent the U.S. Treasury’s stake in the automaker, which the government acquired after providing $49.5 billion in aid.

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

To contact the editor responsible for this story: Kevin Orland at korland@bloomberg.net.

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