GM posts $1.3 billion earnings increase

GM posts $1.3 billion earnings increase

Automaker expected to show ‘solid profitability’ for year

Detroit News Washington Bureau

General Motors Co. reported a second consecutive quarterly profit Thursday, earning $1.3 billion on higher vehicle sales.

GM’s second-quarter results concluded an encouraging earnings season for Detroit’s automakers.

Ford Motor Co. reported a $2.6 billion profit for the three months to June 30, and Chrysler Group LLC reported its second consecutive operating profit.

The improvement in GM’s earnings comes as the company is preparing to file the paperwork for an initial public offering.

Its net income of $1.3 billion was up sharply from a profit of $865 million in the first quarter — GM’s first profitable quarter since 2007.

"Following massive restructuring over the past year, the auto industry is showing signs of health that haven’t been observed in many years," said Itay Michaeli, an analyst at Citi Investment Research & Analysis.

After emerging from bankruptcy, GM has lowered its break-even point, meaning it’s able to make money even in a weaker sales environment, said Chief Financial Officer Chris Liddell.

The results also reflect stronger pricing power and less discounting of vehicles, he said.

"We’re now selling more vehicles with four brands than we were last year with eight — and with fewer incentives," Liddell said.

He said GM’s results wouldn’t keep improving at this pace in the second half of the year, because the first-half results included onetime gains, such as the reversal of some leasing provisions.

For the year, however, GM will show "solid profitability," he said.

GM said its results improved in all regions.

In North America, it earned $1.6 billion before interest and taxes, up from $1.2 billion. It narrowed its losses in Europe to $200 million in the second quarter, down from $300 million in the prior quarter.

Revenue in the first half of the year grew to $64.7 billion, up from $45.5 billion. For the first six months, GM earned $2.2 billion, compared with a loss of $18.9 billion in the first half of 2009.

GM said it lost $12.9 billion in the second quarter last year, when it spent part of the period in bankruptcy protection.

Although the report was generally positive, there were some worrying trends.

During the first six months, GM’s U.S. market share slipped to 18.9 percent from 20.5 percent over the same period in 2009. But Liddell said the automaker’s market share appeared to be stabilizing.

As part of its restructuring, GM shed its Hummer, Saab, Saturn and Pontiac brands. But it said its average transaction prices of vehicles from its remaining brands had risen.

Fleet sales — less profitable sales to rental car agencies and governments, among others — rose to 32.3 percent as a proportion of sales in the first half of 2010, compared with 23.8 percent in the same period last year, GM reported.

But Liddell said the fleet sales should shrink in the second half as a percentage of its total sales.

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