GM: Pulling Out Of The Red?

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General Motors (GM) managed to post a sharply narrower loss during the third quarter, as the Detroit auto maker struggles to make a comeback by slashing staff, closing plants and reorganizing business.



GM on Oct. 25 reported a net loss of $115 million, or $0.20 per share, compared with a loss of $1.7 billion, or $2.94 per share, for the year-ago quarter. The net loss for this year's third quarter included $644 million, or $1.13 per share, in charges for special items such as losses related to its finance arm GMAC and an increase to costs associated with the reorganization of its former unit Delphi Corp.



Excluding such events, GM actually turned a profit during the quarter of $529 million, or 93 cents per share diluted, on revenue of $48.8 billion. During the same period of 2005 GM had lost $1.97 per share on $47.2 billion.



"Our third quarter results again reflect significant progress in our fast- paced initiatives to turn around our business and create a company that is leaner, faster and positioned for long-term sustainable growth," said Chairman and Chief Executive Officer Rick Wagoner in a press release.



Wagoner has a lot at stake. Billionaire Kirk Kerkorian, whose investment company Tracinda owns 9.9% of GM stock, is pushing for control of GM's board. Tens of thousands of GM workers are leaving their jobs as part of a recently outlined $9 billion cost cutting effort. Strong earnings help to bolster Wagoner's claim that he is the right person to turn the company around. Moreover, taken in comparison with Big Three confreres Ford (F) and the Chrysler unit of DaimlerChrysler (DCX) -- each of which posted multi-billion dollar third quarter losses -- GM looks in better shape.



Meanwhile GM, Delphi and the United Auto Workers have been negotiating over Delphi's bankruptcy filing. GM, which spun off Delphi years ago, might end up having to reimburse Delphi for some of its labor expenses. GM on Oct. 25 narrowed the range of its exposure to Delphi's bankruptcy filing to between $6.0 and $7.5 billion pre-tax, compared to a previously disclosed range of $5.5 to $12 billion. GM also says it is more likely that its liability will come out at the lower end of the new range.



The stock sank 3.9% to $34.77 per share in early trading on the New York Stock Exchange, after having hit a 52 week high of $36.56 per share only yesterday on Oct. 24. GM has gained from a 52 week low of $18.33 per share on Dec. 29 2005.



GM's global automotive operations led the improvement during the recent quarter. Although that part of the company's business posted a $116 million loss on an adjusted basis, it still earned a whopping $1.5 billion more than during the third quarter 2005. The improvement came mainly from North American business as other regions continued to perform.



GM is facing tough competition. As it sells fewer low-margin daily rental vehicles in North America and Europe, the company's global market share in the third quarter was 13.9 percent, down from 14.4 percent in the third quarter of 2005. But GM share in the U.S. set a stronger pace in the third quarter at 25.1 percent, its highest quarterly result in 2006.



"We have more work to do, and we remain focused on continuing progress in the quarters to come," Wagoner said in the press release.