GM Did Better Under The Barrel Of Financial Gun

Monday, May 17, 2010, AM | Leave Comment

General Motors released its financial report today – Monday May 17,2010.

It earned $865 million in the first quarter of 2010, its first profit since 2007, as its revenue increased 40 percent.

For the 4th quarter of 2009, G.M. had lost $3.4 billion. That means from one quarter to the next, it not only recovered the $3.4 billion to break even, it went over $865 million and solidified its standing among profitable companies of its stature. Way to go GM!

The overall profit for the first quarter compares to a loss of $6 billion by the old G.M. a year earlier.

The news comes several weeks after G.M. repaid the balance of its $8.2 billion loans from the American and Canadian governments. However, the Treasury Department still owns 61 percent of G.M., a stake it received in exchange for most of the money it gave to the car-maker.

If you own GM stock, you can recoup that money only through the sale of that stock.

At one point the company had stopped the auto financing business. Maybe this is a good time for GM to re-enter the business of financing if it wants to further expand the pool of consumers who can qualify for attractive loans.

G.M. sold control of its former financing arm, G.M.A.C. Financial Services, in 2006. G.M.A.C. is now known as Ally Financial and also handles financing for Chrysler.

In spite of the fact that G.M. shed a significant amount of its debt during the six weeks it spent in bankruptcy protection starting in June 2009, the company has been able to improve its performance.

G.M., Chrysler [lost $197 million in the first quarter, though it was profitable on an operating basis], and probably other companies as well seem to do better under the barrel of financial gun. The only real pressure can come from shareholders and stakeholders if companies start to care for them.

Ford Motor Company, which managed to avoid bankruptcy, recently reported a first-quarter profit of $2.1 billion.

In a Nutshell
This is good news for folks who lost jobs working at G.M. Hopefully, the company would start hiring them again.

In any case, companies must develop strategies for the long haul and not just a quarter. Generally one can make better policies for the long term instead of just 3 months and not necessarily under the barrel of financial gun.

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