GM beats second-quarter forecast on truck, SUV sales
DETROIT — General Motors (GM) earned $1.1 billion, or $1.29 per share, in the second quarter, beating Wall Street expectations as surging sales of large pickups, SUVs and crossovers in the U.S. more than offset slowing growth in China.
The performance was much stronger than the $190 million GM earned in the second quarter of 2014 when it took a $400 million charge related to an unprecedented wave of recalls, including the ignition switch defect.
Chief Financial Officer Chuck Stevens said GM expects second-half pretax profit to be even stronger than the $5 billion in the first six months of the year.
GM shares took off in morning trading, rising nearly 6% to $32.08 after the news.
But the company has now expensed $625 million to cover the cost of the Ignition Compensation Fund, which has found 124 deaths caused by the defect. That cost is slightly above the $600 million high-end of the range GM previously forecast.
"The first two quarters of the year were strong as we fully capitalized on a robust North American market and maintained our strength in China, despite the challenging conditions in that market," said CEO Mary Barra in a statement.
Global sales fell 3.5% to $38.2 billion from $39.2 billion a year earlier, reflecting the strength of the U.S. dollar. A strong dollar reduces the value of sales from Europe and other regions when euros and other currencies are translated to dollars.
Once again North America accounted for the bulk of GM's profits. It earned $2.8 billion in its home region, about double the $1.39 billion of a year earlier. Its pretax profit margin in North America was 10.5%, up from 5.4% a year earlier.
In China, where stock markets have fallen more than 30% since mid-June after a bubble-like rally over the previous year, GM still earned $1 billion from its joint ventures and boosted its pretax profit margin to 10.2% from 10% a year earlier.
Stevens said GM was able to reduce the negative impact of the stock market decline by selling more SUVs such as the Buick Envision and Baojun 560, which generally sell for higher prices in China than comparably sized passenger cars. But it did reduce prices on some models in China by as much as 20%.
GM plans to invest $14 billion to expand production and launch new vehicles in China.
"Our view, long-term, on China hasn't changed." Stevens said. "In the next 10 to 15 years this market is going to be a 35-million unit a year industry."
To put that in perspective, U.S. consumers are on track to buy about 17 million new cars and trucks this year, which would be the industry's best year in more than a decade.
Outside North America and China, GM still has work to do.
GM narrowed its loss in Europe to $45 million from $305 million. It still expects to make a profit in Europe next year for the first time this century. In South America, GM lost $144 million, worse than the $81 million it lost a year earlier.
Reflecting the difficulties in that market, GM took $720 million in charges tied to devaluation of the Venezuelan currency, the bolivar, and a write-down of its assets.
In its international operations, which includes China, India, South Africa and the Middle East, GM made $349 million before taxes, up from $315 million in 2014's second quarter.