* Q1 net profit $865 mln vs loss of $5.98 bln
* GM CFO says 'good chance' of full-year profit
* IPO possible in next year, no timetable yet-CFO (Adds CFO comments from conference call on results, European demand, GMAC, bond price)
By Kevin Krolicki and David Bailey
DETROIT, May 17 (Reuters) - General Motors Co [GM.UL] posted a first-quarter profit as demand steadied in the United States and sales boomed in China, a turnaround the automaker said could put it on track for its first full-year profit since 2004.
Analysts said the results underscored the progress GM made by slashing costs in a bankruptcy funded by the Obama administration and kept open the prospect of the automaker launching an initial public offering as soon as this year.
GM posted a net profit of $865 million, compared with a loss of $5.98 billion a year before, as it ramped up production by nearly 57 percent from year-earlier levels in response to improved U.S. demand and a strong market in China.
It was GM's first quarterly profit since 2007.
For a BREAKINGVIEWS column, "GM still leaves U.S.
"Now that we have achieved profitability, the next step is to achieve sustainable profitability," GM Chief Financial Officer Chris Liddell told reporters.
Liddell said the top U.S. automaker had a "good chance" of making a profit for 2010 although he cautioned that gains in the first quarter that resulted from restocking depleted dealer inventories would fade.
GM received $50 billion of U.S. government financing and is aiming to launch a stock offering that would reduce the U.S. Treasury's nearly 61 percent ownership stake. But Liddell said the timing of that IPO remained uncertain.
"I'm in the unusual position of trying to keep people's expectations low," Liddell said on a conference call. "Could it happen by the end of this year? That's a possibility. Could it be next year? That's a possibility as well."
Revenue rose to $31.48 billion from $22.43 billion a year earlier when GM's deepening financial problems and collapsing U.S. demand sent sales into a tailspin.
First-quarter global vehicle sales rose 23 percent to nearly 2 million units, led by China where sales doubled. U.S. sales were up 17 percent from a year earlier.
"They're headed in the right direction, but one quarter is not going to turn the ship around," said Mirko Mikelic, a portfolio manager for Fifth Third Asset Management.
GM used bankruptcy to drop the Saturn, Saab, Pontiac and Hummer brands, cull U.S. dealerships and slash debt. Liddell said those cuts made it possible for GM to break even with industry-wide U.S. auto sales below the 11 million-unit annual sales rate seen in the first quarter.
"The promise of the bankruptcy was to reduce costs, and it worked. That bodes well for the future," said John Wolkonowicz, an analyst with IHS Global Insight.
Some of GM's first-quarter savings will not carry into the rest of 2010. First-quarter capital spending was almost $1 billion less than GM plans for the remaining three quarters.
Analysts also say GM still faces steep challenges in repairing the reputation of its brands led by Chevrolet in its home market, a key to sustaining gains in vehicle pricing.
Another area of lingering weakness is Europe, where GM posted a loss of $506 million and sales for its Opel and Vauxhall brands dropped almost 1 percent.
GM opted to keep Opel last year and is seeking to cut more than 8,000 jobs and reduce the European's unit's production capacity by a fifth to return to profit by 2012.
Liddell said it was possible Opel would break even next year but faced pressure from a slowdown in auto sales under way even before the recent debt crisis. "The marketplace in Europe is still the most challenging, and, with some of the things that are going on in Greece, we're not out of the woods yet."
IHS Global Insight's Wolkonowicz said GM was in a stronger position than smaller rival Chrysler but lagged behind Ford Motor Co.(F.N)
Ford posted a $2.1 billion first-quarter profit and has forecast that it will be solidly profitable for 2010. Chrysler, now operating under the control of Fiat SpA FIA.MI, posted a net loss of $197 million.
To strengthen its competitiveness, GM has been looking at options to re-establish a captive auto financing arm, people with knowledge of the plans have said.
Such a move would mark a reversal of the process that started in late 2006 when GM sold off a controlling stake in GMAC to raise cash.
Detroit-based GMAC, now known as Ally Financial, is 56 percent-owned by the U.S. Treasury after the government injected $17 billion as part of a restructuring.
Liddell said the lack of a captive finance company had cost GM sales, particularly with less credit-worthy buyers. "It's been an issue and it's one that we're addressing," he said.
GM posted a $4.3 billion loss in 2009, from the time it emerged from bankruptcy in July until the end of the year. The automaker fell into bankruptcy after losses of about $88 billion from 2005 through the first quarter of 2009.
GM's 8.375 percent bonds due in 2033 were unchanged at 36 cents on the dollar, yielding almost 24 percent, according to Market Axess data. Those bonds were issued by the pre-bankruptcy GM and are being tracked as a bet on the value of stock in the reorganized automaker. (Reporting by Kevin Krolicki and David Bailey, writing by Bernie Woodall; Editing by Gerald E. McCormick, Dave Zimmerman, Matthew Lewis and Stev e Orlofsky)