Overseas sales drive turnround at GM

General Motors sustained its turnround in the second quarter, with strong overseas earnings and a sharply narrower loss in North America producing results that far exceeded analysts’ projections.

The Detroit-based carmaker’s shares rose more than 5 per cent to $34.31 in early trading on Tuesday. They hit a low of $18.33 in December 2005, when the company was widely thought to be on the verge of bankruptcy protection.

GM has retained its lead over Toyota as the world’s biggest carmaker. It built 4.75m vehicles worldwide in the first half of 2007, against Toyota’s 4.71m. Measured by sales, the Japanese company overtook GM in the first quarter, but GM regained first place between May and June thanks to its strong international performance.

Net second-quarter income totalled $891m, or $1.58 a share, compared with a $3.4bn loss, or $5.98 a share, a year earlier. Automotive revenues reached a new record.

One-time charges were $520m, or 92 cents a share. The results were also bolstered by $400m from a reversal of tax liabilities under new accounting rules.

The charges stem mainly from contributions to the restructuring of Delphi, the bankrupt parts supplier spun off by GM in 1999, and from charges for the restructuring of GM’s own operations. The carmaker has shed 21,000 workers in North America over the past year.

Rick Wagoner, chief executive, expressed optimism for continued growth in emerging markets in the second half of 2007, but warned that the outlook for the US market “remains challenging”. Most carmakers are expected to report sizeable declines in US July sales today.

Peter Nesvold, analyst at Bear Stearns, said he was encouraged by the sharp improvement in North America, where net losses from continuing operations narrowed to $39m from $3.95bn a year earlier.

GM ascribed the improvement to lower costs and a more profitable vehicle mix, which is partly a result of cutbacks in low-margin sales to car-rental companies. Revenues have risen by more than $1,500 per vehicle in the past year.

Analysts also cited an unexpectedly strong second-quarter cash flow of $1.1bn as cause for optimism.

Cash reserves rose to $27.2bn on June 30 from $24.7bn three months earlier, giving GM a cushion against a downturn in the US market and strengthening its hand in labour contract talks with the United Auto Workers’ union. The contract expires on September 14. But Bank of America’s Ronald Tadross was sceptical about the sustainability of GM’s recovery, pointing to weak sales volumes in North America and Europe, and the risk of pressure on prices and vehicle mix in both regions later this year.

GM Europe posted its best quarterly performance in 11 years, recovering to a net profit of $217m from a $39m loss in the second quarter of 2006.

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