Euro­pean unit’s losses cut GM profit

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - TOM KR­ISHER

DETROIT — Gen­eral Mo­tors’ sec­ond-quar­ter net profit fell more than 40 per­cent 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 posted a profit of $1.66 bil­lion, com­pared with a record $2.87 bil­lion a year ago. But when the Euro­pean loss and one-time items are stripped out, GM made $2.4 bil­lion from con­tin­u­ing op­er­a­tions, or $1.89 per share. That’s down 12 per­cent from last year but still eas­ily beat Wall Street es­ti­mates. An­a­lysts polled by Fac­tSet ex­pected only $1.68 per share.

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

GM’s bot­tom line in­cludes a $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 $654 mil­lion in one- time items from re­struc­tur­ing in In­dia, the sale of GM’s South Africa busi­ness and lin­ger­ing le­gal costs from the ig­ni­tion-switch re­call.

GM agreed to sell its Euro­pean op­er­a­tions to PSA in March for $2.2 bil­lion, and the com­pany dis­closed Tues­day in a regulatory fil­ing that it ex­pects to take a $5.5 bil­lion to $6 bil­lion charge from the sale to be counted when the deal closes — ex­pected by the end of this year. The charge in­cludes $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 pre­tax earn­ings of $3.7 bil­lion. That’s down

$100 mil­lion from a year ago, largely at­trib­uted to a $270 mil­lion drop in North Amer­ica that Stevens at­trib­uted to pro­duc­tion cuts as the com­pany pre­pares to make new Sil­ver­ado and Sierra full-size pick­ups.

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 in­tro­duce the Buick En­clave and other new mid­size SUVs, and pre­pared for the new pick­ups. 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 ver­sus the first, 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 70day 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 $6 to $6.50 pre­tax earn­ings per share for the full year.

Dur­ing a conference call with an­a­lysts, Chief Ex­ec­u­tive Of­fi­cer Mary Barra dis­closed that GM is work­ing on a new sys­tem that will al­low over­the-air re­mote soft­ware fixes be­fore 2020.

At pre­sent, only elec­tric­car maker 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.

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

GM made a strong profit in the U.S. even though sales were down 4 per­cent for the quar­ter. That’s be­cause much of the sales drop came from lower-profit cars, which were down 19 per­cent. Truck and SUV sales rose 3 per­cent, and that pushed GM’s av­er­age sales price per ve­hi­cle up 3 per­cent to $39,118, ac­cord­ing to Ed­munds.com.

Shares of GM fell 25 cents to close Tues­day at $35.57.

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