GM 2Q net earnings fall on loss from sale of Europe unit

General Motors’ secondquarter net profit fell more than 40 per cent as the carmaker lost money on the pending sale of its European unit and warned it still faces billions of dollars in further losses to come.

GM made net income of US$1.66 billion, compared with a record US$2.87 billion a year ago. But when the European loss and onetime items are stripped out, GM made US$2.4 billion from continuing operations, or US$1.89 per share. That’s down 12 per cent from last year but still easily beat Wall Street estimates. Analysts polled by FactSet expected only US$1.68 per share.

Revenue was US$37 billion excluding Europe, falling short of analyst estimates of US$40.3 billion.

GM’s bottom line includes a US$770 million loss as it prepares for the sale of its European Opel and Vauxhall brands to France’s PSA Group, owner of Peugeot and Citroen. It also includes US$654 million in one-time items from restructuring in India, the sale of GM’s South Africa business and lingering legal costs from an embarrassing ignition switch recall.

GM agreed to sell its European operations to PSA in March for US$2.2 billion, and the company disclosed Tuesday in a regulatory filing that it expects to take a US$5.5 billion to US$6 billion charge from the sale to be counted when the deal closes, expected by the end of the year. The charge includes US$3.9 billion in previous losses that GM will not be able to use to offset future tax obligations.

Chief financial officer Chuck Stevens called the second-quarter performance strong with pre-tax earnings of US$3.7 billion. That’s down US$100 million from a year ago, due largely to a US$270 million drop in North America that Stevens attributed to production cuts as the company ramps up to launch new Silverado and Sierra full-size pickup trucks.

GM’s dealer inventory in the U.S. grew by 273,000 at the end of June compared with last year, to 980,000, as it ramped up to launch the Buick Enclave and other new mid-size SUVs, and prepared for the new pickup trucks. That’s enough inventory to supply dealers for 105 days. But Stevens said the company will cut production by 150,000 vehicles in the second half, including car reductions and 13 weeks of downtime at truck factories to switch to the new models. That should bring inventory down to a more normal 70-day supply of around 800,000 by the end of the year, he said.

Partly because of the production cuts, second-half earnings will be lower than the first half, Stevens said. But he reaffirmed guidance of US$6 to US$6.50 pre-tax earnings per share for the full year.

On a conference call with analysts, chief executive officer Mary Barra disclosed that GM is working on new electrical and infotainment systems that will allow over-the-air remote software fixes before 2020. At present, only Tesla Inc. can do such software updates for safety-critical systems that operate the vehicle, but GM and others can update entertainment systems, said Navigant analyst Sam Abuelsamid.

Pre-tax profits in North America, GM’s most lucrative region, fell 14 per cent for the quarter, to US$3.48 billion. But profits in International Operations, including China, nearly doubled, to US$340 million. GM also narrowed its loss in South America from US$118 million to US$23 million. Profits at its loan-making unit rose 67 per cent, to US$357 million.

GM made a strong profit in the U.S. even though sales were down four per cent for the quarter. Much of the sales drop came from lowerprofit cars, which were down 19 per cent. Truck and SUV sales rose three per cent, and that pushed up GM’s average sales price per vehicle up three per cent to US$39,118, according to Edmunds.com.

Shares of GM fell US25 cents to US$35.57 in New York trading.