This week General Motors reported $1.7 billion in earnings before taxes and interest charges for the first quarter, and a net profit of $865 million. Wall Street analysts and company insiders say the automaker’s surprising pool of black is a sign of regular profits to come and could lead to an initial public offering of stock as early as the end of this year.??

GM’s first-quarter profit came on a 40% surge in revenues, a remarkable achievement considering the company has shuttered half its brands and is not deriving profits from a finance unit. The first quarter black ink follows a $3.4 billion fourth quarter loss that actually contained $3.1 billion in one-time charges, meaning that GM was within $300 million of breaking even last December. After nearly running out of money at the end of 2008, GM had positive cash flow of $1 billion in the first quarter. The North American operation, long the source of GM’s financial woes, earned $1.2 billion before interest and taxes.??

GM still has a long way to go before taxpayers, who today own 61% of GM, are no longer shareholders. The last time GM turned an annual profit was 2004, when the auto industry at large sold almost 17 million vehicles in the United States. This year, most analysts expect sales of fewer than 12 million. But the first quarter profit is the first step toward convincing institutional investors, as well as individuals, that GM stock will be worth buying again when its ticker symbol returns to the stock exchange, and the company again takes up its place on the Standard & Poor’s 500 Index.?

The other sign that GM’s recovery is going better than expected is the company’s move last month to pay back the remaining $5.8 billion in loans made to the automaker by the U.S. and Canadian governments. The mass of confusion and criticism surrounding those payments, however, has somewhat dulled their impact. GM paid back those loans from escrowed Troubled Asset Relief Program funds it now says it does not need for its survival. But lost among misleading headlines and partisan chatter over GM essentially paying back government loans with other government funds is that GM is able to give back any money at all, less than a year after emerging from Chapter 11.

“There is no doubt that GM is making real headway in every category of their business,” says Joseph Philippi of Auto Trends Consulting, Short Hills, NJ. “But getting out from government ownership is going to be complicated and it may take a while.”

How Else Has GM Improved Its Business?

GM’s debt has gone from $94.7 billion before bankruptcy to $17 billion. That’s less than half of Ford’s comparable debt. GM has cut its annual operating costs by $10.7 billion a year. GM’s market share has dropped from 21% a year ago to 18.7% through April, despite shedding four of its brands (Hummer, Pontiac, Saturn and Saab). The company has recast its board of directors with new members, as well as purging senior executives considered too hidebound by GM’s old culture.

Does GM Have Real Momentum In The Marketplace??

One of the things GM is trying to make people forget is the name “General Motors.” Former vice chairman Bob Lutz, who retired from GM last month, said that former management was convinced that GM would fall off a cliff if it filed for bankruptcy because no one would want to buy a new vehicle from a bankrupt automaker. In fact, surprising few consumers directly associate Chevrolet, Cadillac, Buick and GMC with GM. The latest generation of vehicles, like Buick LaCrosse, Cadillac CTS, Chevy Equinox, and Buick Enclave have been highly praised by the automotive press and Wall Street, and are generally viewed as comparable in quality to Asian and German vehicles, and better styled in many cases.?

What Are The Biggest Challenges To GM’s Recovery?

The government’s auto task force said that GM’s sales and marketing, and its management of its brands, was one of the two biggest problems at the company. The other was its financial management. The company has had three marketing chiefs in less than a year. But it recently hired the chief marketing officer from Hyundai, whose reputation for aggressive and innovative moves helped transform Hyundai’s image from a cut-rate Korean brand to a legitimate rival to Honda and Nissan. GM has shuffled executive seats quite a bit since emerging from bankruptcy and that has to stop if investors are going to have confidence in management.?

Stay tuned for tomorrow's second part in our series on GM's Road To Recovery.

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