GM earnings surge on solid sales in US, China

[NEW YORK] General Motors reported on Thursday that quarterly earnings quadrupled on solid sales in the US and China as it pledged better results in the second half of 2015.

The largest US automaker benefited in the quarter ending June 30 from improved profit margins in the key North America region, as well as brisk sales in China despite worries about a slowing economy.

GM chief executive Mary Barra said Thursday's earnings were "a proof point that we're doing what we say we're going to do." GM shares jumped 4.2 per cent to US$31.58 in midday trade.

Earnings for the second quarter were US$1.1 billion, up from US$278 million in the year-ago period. The 2014 second-quarter earnings were depressed by US$1.2 billion in elevated costs for car recalls following an ignition-switch scandal.

Revenue dipped 3.7 per cent to US$38.18 billion. GM attributed the drop to the strong dollar.

Operating earnings in North America were roughly double that of last year at US$2.8 billion, setting a new company quarterly record due in part to robust sales of sport utility vehicles and other large cars in its home market.

The profit margin in North America, by far GM's largest region by revenues, hit 10.5 per cent in the quarter, up from 8.8 per cent in the first quarter of the year. Barra has promised to reach a 10 per cent profit margin in 2016.

Earnings in GM International Operations, which includes China, rose 10.8 per cent to US$349 million. GM delivered 823,000 cars in China, up 2.6 per cent from a year ago.

GM chief financial officer Chuck Stevens said the company has taken a number of steps to manage the Chinese market through cost cutting, working with dealers to manage inventory levels and boosting output of popular SUV models.

GM owns research and auto parts businesses in China and manufactures vehicles through a number of joint ventures with Chinese companies.

The automaker "will continue to closely monitor" China as growth slows, Stevens said. The company has analyzed downturn scenarios for China, but believes car sales will remain healthy, he added.

"GM expects strong results in China will be sustained through" the second half of 2015, the company said in an investor presentation.

GM had a smaller operating loss in Europe than in the year-ago quarter. Stevens said the company was on track to reach a target to return the division to profitability in 2016.

The weakest division was South America, where GM had an operating loss of US$144 million, deeper than the US$81 million lost a year ago. In Brazil, sales slid 35.2 per cent to just 92,000 vehicles.

GM's earnings were negatively affected by charges totaling US$1.1 billion. These items included a US$600 million charge for a currency devaluation in Venezuela and US$400 million write-down on assets, primarily in Thailand.

The company also spent an additional US$100 million in compensation for victims of accidents due to defective ignition switches.

In the year-ago quarter, GM had US$1.3 billion in charges, including US$400 million for the ignition-switch compensation fund.

AFP