Coverage: GM posts best quarter since bankruptcy

General Motors Co. announced Thursday its best earnings report since the automaker filed for bankruptcy court protection eight years ago, but it issued a warning about its results for the rest of the year.

Gautham Nagesh of the Wall Street Journal had the news:

Results for the quarter benefited from a continued shift in the U.S. to high-margin trucks and sport-utility vehicles from passenger cars, steady sales increases in China and improved conditions in Western Europe.

GM’s second-quarter operating profit far exceeded analysts’ expectations. Overall profit for the period ended June 30 more than doubled to $2.9 billion on revenue up 11% to $42.4 billion, both quarterly postbankruptcy records.

GM also eked out a $137 million gain in Europe, its first in the region since 2011. But Chief Financial Officer Chuck Stevens signaled concern about a potential hit to earnings later this year because of the U.K.’s decision to exit the European Union. Citing a weakening British pound and softening of U.K demand, the company estimates $400 million in potential second-half impact because of Brexit, possibly knocking GM off its goal of reporting black ink in Europe on an annual basis for the first time since 1998.

“The Brexit vote has created a potentially significant headwind,” Mr. Stevens said when discussing earnings on Thursday. But he reiterated the auto maker still aims to meet its profit projection. “This is a speed bump along the way that we’re going to deal with.” Cost cuts and pricing changes could soften Brexit’s blow, he said.

Greg Gardner of the Detroit Free Press focused on the strength of the U.S. market:

Once again, North America carried most of the load. The automaker earned $3.6 billion before taxes in its home market.

Americans are buying and leasing new vehicles at about the same pace as 2015’s record pace. More than its domestic competitors, however, GM has de-emphasized sales to rental car fleets because they are less profitable, on average, than retail sales to individual consumers.

So far that strategy seems to be working. Before taxes, GM’s North American profit margin increased to 12.1% in the quarter from 10.5% a year earlier. In other words, the company made more money selling fewer vehicles between April and the end of June than it did a year ago.

GM has seen its U.S. market share drop to a historic low, as other company’s have continued to allocate large portions of their sales to the rental agencies. But Chuck Stevens, GM chief financial officer, said that it’s U.S. market share should rise in the second half of the year.

The North American profit increase also came despite increased discounts and 0% financing on the Chevrolet Silverado, the company’s very profitable fullsize pickup truck.

Melissa Burden of the Detroit News noted how GM was trying to diversify its operations:

GM was profitable in all of its regions except for South America, where it lost $121 million pre-tax in the quarter. The company saw strong results in China, where it made $500 million and had a 9.5 percent adjusted profit margin.

The automaker also noted it spent $581 million including $300 million cash on its purchase of Cruise Automation, the San Francisco-based autonomous software company that GM said in March it would acquire to quicken its pace in developing self-driving cars. Some reports indicated that GM spent about $1 billion on the company then with about 40 employees.

Stevens said the half cash, half stock deal’s actual cost could rise because of ongoing compensation.

“There’ll be additional cost associated with retention of key employees and also critical performance milestones related to the technology and commercial performance,” he said, adding that won’t be disclosed.

So far this year, GM has been focusing on building up its future mobility offerings and self-driving car development. It has invested $500 million or a 9 percent stake into ride-hailing company Lyft Inc. It purchased the assets of another ride-sharing company, Sidecar Technologies Inc. And it rolled out Maven, its personal-mobility brand that includes car-sharing programs in Ann Arbor, Chicago, Boston and Washington, D.C. – and Maven+, a residential car-sharing service in New York City, Chicago, Washington, D.C., and coming this summer in Boston.