By Ben Klayman and Deepa Seetharaman
DETROIT, July 25 General Motors Co posted
a higher-than-expected second-quarter profit on Thursday as
aggressive cost-cutting helped the U.S. automaker narrow its
losses in Europe.
Higher prices on new models such as the 2014 Chevrolet
Silverado pickup truck and Impala large sedan boosted results in
its core North American market. Executives said those results
will improve further in the second half thanks to other new
"The biggest news in the quarter is just Europe is not as
bad," said Guggenheim Securities analyst Matthew Stover, who has
a "neutral" rating on GM's stock.
Europe, where auto industry sales hit a 20-year low in the
first half, remains "very challenging," GM Chief Financial
Officer Dan Ammann said. He added it was too soon to call any
sort of improvement there.
That was in marked contrast to U.S. rival Ford Motor Co
, which on Wednesday reported a smaller-than-anticipated
loss in Europe and said the region could be stabilizing.
GM executives aren't ready to go that far. "A demand-driven
recovery (in Europe) isn't in sight yet," GM Chief Executive Dan
Akerson said on a conference call.
GM's money-losing European unit has been a key focus for
investors since the automaker went public in the fall of 2010
following a bankruptcy reorganization and a $49.5 billion
government bailout. In November 2011, Akerson charged Vice
Chairman Steve Girsky with overhauling the European operations,
which have suffered 13 straight years of losses.
GM's net income in the second quarter fell to $1.2 billion
from $1.5 billion a year earlier, hurt by higher costs related
to the rollout of its redesigned full-size pickup trucks and
losses in Asia outside of China.
Excluding one-time items, mostly related to the acquisition
of preferred shares in GM Korea, the automaker earned 84 cents a
share, 9 cents above the average forecast of analysts polled by
Thomson Reuters I/B/E/S. Second-quarter revenue rose 4 percent
to $39.1 billion.
GM shares rose 1.5 percent to $37.70 in early trading, their
highest intraday price in two and a half years. They gave back
those gains later and were down 25 cents at $36.89 in afternoon
trade. Analysts said investors locked in their gains. Through
Wednesday, GM's shares had risen almost 30 percent this year.
TIGHT GRIP ON COSTS
GM kept a tight grip on costs in Europe in the second
quarter, cutting spending by $400 million. Ammann said the
company continues to be aggressive in those efforts.
GM Europe had an operating loss of $110 million in the
quarter, almost one-third smaller than Wall Street expected. The
company lost $1.8 billion in Europe last year.
While GM's sales and market share in Europe fell in the
latest quarter, Morgan Stanley analyst Adam Jonas said the
improvement in financial performance was two years ahead of his
The automaker has said it is targeting a return to
break-even results in Europe by mid-decade. Ammann did not
change that goal when asked whether GM Europe's strong
performance in the second quarter meant it could reach
break-even in 2014.
"Obviously, what we don't control is the European
macro-environment that remains very challenging, but we're
making good progress despite that," Ammann told reporters at the
company's headquarters in downtown Detroit.
He said GM remains focused on executing plans previously
outlined in its alliance with PSA Peugeot Citroen but
has no plans to put more money into the French automaker. GM
paid $423 million for its 7 percent stake in Peugeot but in
February wrote down about half of that investment.
SMOOTH TRUCK LAUNCH
GM's North American business had operating earnings of
almost $2 billion in the latest quarter, easily beating the
$1.75 billion that nine analysts polled by Reuters had expected.
GM was able to get better pricing in North America,
accounting for an earnings gain of $300 million. That was offset
by a $400 million increase in costs related mostly to the
introduction in June of the 2014-model Chevrolet Silverado and
GMC Sierra trucks, key profit generators for the company.
Akerson said the launch of the new trucks, which went on
sale in June, has gone well and the timing was perfect, given
the recovering U.S. housing market. Officials said it was too
early to say whether continued strong demand for the 2013-model
trucks could result in even better pricing than GM initially
thought for the new models.
Costs associated with the truck launch will ease in the
fourth quarter and into next year, GM said.
The company's international operations, which include China,
reported a disappointing second-quarter profit of $228 million,
down 64 percent from a year earlier. Ammann cited pricing
pressure in Australia and Southeast Asia, as well as cost
headwinds in India. But he said operating earnings in China
increased and will remain strong going forward.
Ammann reaffirmed GM's forecast for industry-wide sales in
China to rise 7 percent to 9 percent this year.
In discussing the company's Cadillac brand, Akerson said GM
was targeting a 10 percent share of China's luxury auto market
by the end of the decade.