DETROIT -- General Motors faces two profit drags this year that it can't do much about: rising commodity costs and higher gasoline prices. So to increase North American profits, GM is countering on two fronts that it can control: price increases and cost cuts.
Last week, GM reported that North American business delivered much of its $3.2 billion net profit in the first quarter. Excluding one-time items, such as the $1.6 billion GM made on its sale of Delphi Automotive stock, its first quarter income was $2 billion before interest and taxes.
North American earnings more than doubled to $2.9 billion from $1.2 billion a year earlier on increased U.S. market share and higher sales volumes overall.
CFO Dan Ammann said North American profits in the year's remaining three quarters should, on average, top the first quarter's. He said better pricing and cost reductions will more than offset higher raw-materials costs and higher gasoline prices, which could cut sales of higher-margin trucks.
If those scenarios play out, Morgan Stanley analyst Adam Jonas wrote in a research note, "that leaves the powerful forces of incremental margins and volume growth to drive higher profit."
Prices rose some in the first quarter, but GM's incentive binge in January and February undercut them. Ammann said the incentives reduced North American first quarter profits by $300 million.
"Both price, and incentive reductions" will help pricing improve in North America through the rest of the year, Ammann said. GM's average transaction price will be "up favorably due to both of those."
CEO Dan Akerson said GM also will attack costs this year, especially in product development and manufacturing.
"We need to make our processes much more simple; get rid of some of the complexity in our product development," Akerson said. "That will simplify and take costs out of our product development. It will also simplify our manufacturing processes."