General Motors Corp. ran its string of profitable quarters to three on Tuesday when it announced second-quarter net income of $891 million that came largely from overseas operations.
The earnings growth in Europe, Latin America, Asia and other areas eclipsed lingering problems in North America. Although GM showed vast improvement in its backyard, it still posted a net loss of $39 million there.
Nonetheless, quarterly profits announced by GM and Ford raised hopes that at least two of the Detroit Three were headed in the right direction after billion-dollar losses and talk of possible bankruptcies.
“I think it's brightening up,” David Healy, an analyst with Burnham Securities, said of the clouds that had been hanging over Detroit. “Both companies have shrunk about one-third of their hourly work force and they've closed a lot of plants. They're basically adjusting to the level of business that they're doing now.”
Ford Motor Co. last week posted its first quarterly profit in two years at $750 million, although the company warned it had not turned the corner to consistent profitability. Chrysler Group's second-quarter earnings results have been delayed until August by the pending sale of 80.1 percent of the company to Cerberus Capital Management LP.
The second-quarter profits may be bad timing, coming on the heels of the formal start to contract talks with the United Auto Workers, although analysts say the companies can still point to losses in North America to show the need for concessions.
GM's second-quarter profit was a huge reversal from the $3.4 billion loss it posted in the same period last year.
“Our heavy commitment to key growth markets around the world really paid off in strong growth and earnings,” Chairman and Chief Executive Rick Wagoner said in a statement.
The net loss in North America was a major improvement over the second quarter of last year, when GM lost $3.95 billion.
In the second quarter of 2006, GM took a giant after-tax charge of $3.7 billion for early retirement and buyout offers that eventually reduced its hourly work force by more than 34,000.
The latest profit amounted to $1.56 per share for the April-June period, compared with a loss of $5.98 per share a year ago.
Revenue fell to $46.8 billion from $53.9 billion a year ago due largely to the sale of 51 percent of GM's former financial arm, GMAC Financial Services.
The latest profit total included $520 million in charges associated with the bankruptcy reorganization of Delphi Corp., GM's former parts arm, and other restructuring costs for GM's North American unit.
GM said its adjusted net income, excluding one-time items, was $1.4 billion, or $2.48 per share. On a comparable basis, 15 analysts polled by Thomson Financial forecast earnings of $1.13 per share.
GM shares fell 21 cents to $32.40 in trading Tuesday after rising as high as $34.65 earlier in the session.
The Detroit-based company said its net income from continuing global automotive operations was $618 million, compared with a net loss of $3.48 billion in the year-ago period.
The quarterly results exclude Allison Transmission, which GM intends to sell in the third quarter and has classified as a discontinued operation.
In Europe, the company had net income of $217 million, versus a net loss of $39 million in the same quarter last year.
The company's Asia Pacific unit posted a net profit of $227 million, compared with $376 million in the year-ago quarter, which included $212 million from the sale of GM's interest in Japanese automaker Isuzu.
In its Latin America, Africa and Middle East unit, GM said explosive growth helped it to its best quarterly net income in a decade at $213 million versus $139 million a year ago.
GM still owns 49 percent of New York-based GMAC, which on Monday reported that losses from its home lending operations caused second-quarter profits to fall 63 percent.
GMAC reported a quarterly profit of $293 million, compared with $787 million in the same period last year.
Chief Financial Officer Fritz Henderson said GM is confident it will achieve its target this year of $9 billion worth of annual cost cuts.
He would not predict when GM would make a net profit in North America, but said restructuring costs for Delphi should be less in the second half of the year, and income should rise with the Allison Transmission sale closing.
Henderson predicted revenue growth in emerging markets for the third quarter while sounding a note of caution for North America, mainly due to weak home sales and high fuel prices, which have reduced pickup truck sales.
“The challenge we have in North America and the U.S. remains foremost in our minds as we frankly are able to grow in a number of other markets around the world that have more robust growth opportunities,” he said.
For the remainder of the year, he said GM expects continued improved automotive earnings and improved but still negative operating cash flow.
Henderson would not comment on whether the quarterly profit would affect the union contract talks.
The company likely is to seek concessions from the union and wants to cut a $25 per hour labor cost disparity with its Japanese competitors.
GM said its revenue per vehicle increased $1,540 in the quarter compared to the year-ago period, reflecting a more profitable product mix, reduced low-profit fleet sales and its strategy of bringing sales prices closer to the sticker and relying less on incentives.
Henderson said GM sold more high-end GMC Sierra and Chevrolet Silverado pickup truck models, but that likely will abate in the second half of the year as a wide array of lower-end models becomes available.
Already, though, the company has been forced to raise incentives on some pickup models, including zero percent financing for 60 months on extended and crew cab models to counter a highly competitive market.
Henderson said the escalation of pickup truck incentives has him worried for the second half of the year.
“We'll do what we need to do to be competitive, but there's a cost to it,” he said.
