Tuesday, July 31, 2007

Strong international growth drives GM into profit (Financial Times)


By Bernard Simon in Toronto

Published: July 31 2007 13:11 | Last updated: July 31 2007 13:11

Strong growth in Europe, Asia and Latin America helped General Motors overcome a small loss in its North American operations to post a sizeable second-quarter profit.

The Detroit-based carmaker, which is at risk of losing its crown as the world’s biggest vehicle manufacturer to Toyota, on Tuesday reported net income of $891m, or $1.58 a share, compared with a $3.4bn loss, or $5.98 a share, a year earlier.

The latest figure includes $520m in one-time charges, or 92 cents a share, stemming mainly from contributions to the restructuring of Delphi, the bankrupt parts supplier spun off by GM in 1999, and from charges for the restructuring of GM’s own North American operations, resulting in buyouts and retirement packages for tens of thousands of workers.

Analysts polled by Thomson Financial had projected earnings per share of $1.13.

Rick Wagoner, chief executive, expressed optimism for continued growth in key emerging markets in the second half of 2007, but cautioned that the outlook for the US economy and vehicle market “remains challenging”.

The net loss from continuing operations in North America narrowed to $39m from $3.95bn a year earlier, due mainly to a more profitable vehicle mix and lower structural costs.

“It’s true that our North America team has made huge improvements”, Mr Wagoner said. “But our current earnings clearly demonstrate we’ve got more to do.”

He singled out healthcare costs as a key competitive disadvantage. These costs are a vital issue in talks on new labour contracts between the Detroit carmakers and the United Auto Workers union, which formally began last week. The current contracts expire on September 14.

GM Europe posted its best quarterly performance in 11 years, recovering to a net profit of $217m from a $39m loss in the second quarter of 2006. The improvement was ascribed to favourable pricing and “solid” cost performance.

Earnings in the Asia-Pacific region totalled $227m, compared with $376m a year earlier. More than half of last year’s profit came from the sale of GM’s stake in Isuzu, the Japanese vehicle maker.

The rise in operating profits was driven mainly by China and by GM Daewoo, the carmaker’s South Korean affiliate. Asia-Pacific sales grew by 8 per cent, with GM China setting record volumes in the second quarter.

Earnings in Latin America, Africa and the Middle East reached $213m, the highest in a decade. Sales in Venezuela reached a new record.

GM said that its liquidity position remained strong, with operating cash flow of $1.1bn in the second quarter. Cash reserves rose to $27.2bn on June 30 from $24.7bn three months earlier.

The carmaker is due to receive another $5.6bn in the current quarter from the recently-announced sale of Allison Transmission, a maker of truck transmissions.

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