GM Profit Up 16% to $642 Million : Autos: The surprise showing in typically slow third quarter is attributed to cost cutting in its North American operations.
DETROIT — General Motors Corp. reported a 16% increase in earnings Tuesday as it continued to make strides in cutting costs in its troubled North American auto operations.
The nation’s No. 1 auto maker reported quarterly profit of $642 million, compared to the $552 million it earned in the same period a year ago.
It was GM’s best third quarter--typically the industry’s slowest--since 1988. The earnings were somewhat higher than many analysts had expected and were pumped up by $110 million in tax benefits from abroad.
“It certainly was a good quarter,” said David Garrity, an analyst for Smith Barney in New York. GM’s stock closed unchanged at $46.50 a share in trading on the New York Stock Exchange.
The company’s non-automotive units contributed the bulk of the earnings, although GM executives were most happy with improvements in the struggling North American auto operations.
GM showed a loss of $93 million for its North American auto operations in the third quarter, down from a year-ago loss of $362 million.
“This is coming from our cost-reduction effort,” said J. Michael Losh, GM’s chief financial officer.
The company benefited from lower raw material costs, reduced pension fund contributions and lower overtime costs as it cut back production because of slower consumer demand, Losh said.
He said GM paid lower steel prices and reaped savings passed on by suppliers. In addition, overtime costs were down about $100 per vehicle. GM contributed just $800 million to its pension fund in the quarter. By comparison, it had put $18 billion into the pension plan the previous six quarters. GM promises to have the plan fully funded in 1996.
Maryann Keller, an analyst for Furman Selz in New York, said it is difficult to compare the North American performance because in 1994 the company had several major product launches and strikes in the third quarter.
“Still, there is evidence of continued progress by the company,” she said. “It is evident in their gross profit margins.” GM’s gross profit margin was 14.1% in the quarter, compared to 13.5% a year ago.
The company also reported an improvement in its market share. GM, which has seen its slice of the market slide steadily in recent years, said its share of the U.S. vehicle market improved to 32.2% from 31.5%.
GM said its incentive costs per vehicle declined, as did fleet sales, which are generally less profitable than retail sales.
The company’s inventories, however, stayed stubbornly high, a reflection of the slack market and some impacts from the car haulers strike that was recently settled. Car inventories stood at 79 days and truck inventories at 81, well above the industry’s ideal of 60 days.
GM expects the economy to continue to grow at a modest rate into 1996 and projects sales growth of about 2% next year, Losh said.
The company’s international operations earned $111 million, down from $232 million a year ago. Profit suffered from start-up costs of Opel’s new Vectra in Europe, exchange rate fluctuations and higher costs in South America.
GM Chief Executive John F. Smith said the results abroad reflect several short-term unfavorable items and “are reflective of international operations’ future earnings.”
The company’s non-automotive subsidiaries again put in strong performances. Together, the three units--General Motors Acceptance Corp., Hughes Electronics Corp., and Electronic Data Systems Inc.--posted a 7.2% gain in earnings, to $657 million from $705 million.
