GM tops 2Q profit forecasts

During the quarter, the company sold 576,000 units under the Chevrolet brand in the U.S. This helped the automaker report record adjusted earnings and profit margin since the 2009 financial crises in the North American market.

Stripping out one-time charges, GM earned $2.9-billion, or $1.29 a share, in the latest quarter, up from $1.4-billion, or 58 cents a share, and well ahead of the $1.08 a share forecast of analysts. But with performance like GM delivered in the States, its $34.9 billion cash and credit hoard, its 23.4 percent return on invested capital (a Marchionne obsession) and its market position in China, you can see why he covets a tie-up that would create a global automotive behemoth. And indeed, GM North America’s pre-tax earnings of $2.8 billion and operating margin of 10.5% were both deeply impressive.

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.

GM vastly exceeded Wall Street’s estimates with such strong profits in North America that losses on other continents did not matter as much.

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.

GM’s results contrast those reported by one of its biggest rivals Thursday.

GM has committed to spending about $14 billion on new vehicles and facilities in China over the next several years. In South America, job cuts and capacity reductions are beginning to right-size GM’s operations in that volatile region.

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

Third, the industry in general and GM in particular are in the early stages of a technological revolution that is likely to change the paradigm of personal mobility and its intersection with what we understand today as “connectivity”. Net income was up 51.2% from a year earlier and earnings per share surged 48.1% to $3.14. Chief Financial Officer Chuck Stevens called it a final estimate, although GM still faces multiple lawsuits and a potentially large penalty from a Justice Department criminal investigation.

GM bought back US$2.1 billion in shares through July 21 and plans to buy back a total of US$5 billion in stock.

“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. Long term, Stevens said, China will grow to annual vehicle sales of 35 million, up from about 20 million now.

Among the special items were $720 million for currency devaluation and asset write-downs in Venezuela and $75 million to compensate ignition switch crash victims. “If you exclude that, our revenue was up close to a billion dollars year over year, with strength really in North America”.