Wednesday, August 02, 2006

GM 2nd quarter better than expected

Wednesday, July 26, 2006
GM 2nd quarter better than expected
Brett Clanton / The Detroit News

General Motors Corp. today reported better-than-expected quarterly results after cutting jobs and improving sales of its highly-profitable SUVs, but still was dragged down in the May-June period by huge restructuring costs.

The world's largest automaker posted a quarterly loss of $3.2 billion, or a $5.62-per share, compared with a loss of $987 million, or $1.75 per share, a year ago in the same period.

GM was overwhelmed by $4.3 billion in one-time charges, the bulk of which was related to a sweeping buyout and early retirement plan that will eliminate nearly 35,000 hourly jobs by the end of the year.

Excluding the charges, GM scored a profit of $1.2 billion on an operating basis, or $2.03 per share, on record revenue of $54.4 billion. This reflects a $1.4 billion improvement from the year-ago adjusted loss of $231 million, or $0.41 per share, on revenue of $48.5 billion.

Analysts had expected GM to report an operating profit of 55 cents per share on $42.6 billion in revenue.

Another surprise Wednesday: GM said it now expects to save $9 billion a year beginning in 2007 due to restructuring actions, up from $8 billion. About $6 billion in savings will be realized this year.

The improved results give some much-needed good news to GM Chief Executive Rick Wagoner, who is under pressure from billionaire investor Kirk Kerkorian to hit better numbers after a $10.6 billion loss in 2005.

The better-than-expected performance could also ease pressure on GM to form a global alliance with Nissan Motor Co. and Renault SA. Such an alliance was proposed in June by Kerkorian as a way to accelerate change at GM, and the companies are now studying the plan.

Turnaround plan working?

The improved results, which follow a $445 million profit in the first quarter -- GM's first quarterly gain since 2004 -- suggest a sweeping North American turnaround plan may be starting to bear fruit.

"Our turnaround has not just gained traction, it's accelerating into high gear," Wagoner said Wednesday in a statement." While significant work still remains, our ability to identify and initiate $9 billion in cost cuts over the course of the past year is unprecedented in this industry."

But GM's quarterly report also continued to expose weaknesses in the business.

While GM's North American operations narrowed its losses by $1.1 billion from a year ago, the unit still lost $85 million in the quarter. And while new SUVs helped boost average per-vehicle revenues by $500, GM officials raised doubts about the sustainability of that trend.

GM divisions in Europe, the Asia-Pacific region and Latin America and the Middle East all posted profits on an adjusted basis during the second quarter. And GMAC, the automaker's financing arm, reported net income of $898 million, up $82 million from a year ago.

The sale of a majority stake in GMAC is still on track to close in the fourth quarter, said GM's Chief Financial Officer Fritz Henderson in a Wednesday morning conference call to discuss the second-quarter financial results.

Little new on alliance talks

As for an update on talks with Nissan and Renault, Henderson said little, in keeping with a pledge to keep the negotiations private while a 90-day internal study of the tie-up is underway.

"There has been a lot of discussion about it, notably, not from us," he said.

Henderson said the goal at this point is to explore the "industrial logic" of joining forces with the Japanese and French automakers, and that it was too soon to discuss whether the parties had an exclusive agreement or if they could explore partnerships with other companies.

Peter Morici, economics professor at the University of Maryland, said a GM-Nissan-Renault partnership only makes sense if it can help GM reduce what he calculates is a $40 per hour labor cost disadvantage with foreign automakers operating in the U.S.

"Any merger or joint venture that fails to address the labor cost issue will not make this company viable," he said.

GM shares have risen more than 50 percent this year on optimism that the company's turnaround plan is starting to work.

GM's shares climbed 99 cents to $30.66 yesterday in New York Stock Exchange trading, the first close above $30 since October.

You can reach Brett Clanton at (313) 222-2612 or

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