General Motors profit nearly doubles, slowdown risk ahead

DETROIT: General Motors Co’s quarterly profit shot past Wall Street expectations, but its share price slipped as investors focused on the risks of a sputtering economy and resurgent Japanese rivals.

GM reported second-quarter profit that nearly doubled as people paid more for new cars like the Chevrolet Cruze, and the automaker took a larger share of global sales as major Japanese competitors were largely sidelined by the March earthquake.

GM shares, which rose after the results were announced, later fell 2.6 percent in morning trading.

“It was a solid quarter that shows GM’s return to health is on track,” said Edward Jones analyst Matt Collins. “But with Japanese automakers getting back in the game while the economy appears to be stalling, this is probably as good as it gets this year.”

Coming out of bankruptcy, GM Chief Executive Dan Akerson and other executives said the company stripped out enough costs to make the business recession proof so it could thrive even in a weak auto market.

The first major test of that claim for investors, including the U.S. Treasury, will be how GM performs if the economy slips back into recession.

“There is an increased level of uncertainty,” GM Chief Financial Officer Dan Ammann told reporters. “But what we’re trying to do, and what we’ve done successfully, is to configure the business with a low break-even point and a strong balance sheet so we can handle whatever scenario comes along.”

The U.S. automaker is pushing heavily into smaller, more fuel-efficient cars like the Cruze, but still relies heavily on sales of more profitable trucks in the U.S. market.

In the second quarter, GM raised prices and reduced discounts thanks to strong sales of vehicles such as the Cruze and the Chevy Equinox and the lack of competitive pressure from the likes of Toyota Motor Corp.

Jefferies analyst Peter Nesvold called GM’s quarterly run phenomenal because of a more-than-expected lift from higher prices. But he also said the results were not enough to dispel investor concerns about the economy.

“The market is clearly saying, ‘I don’t care what you did in the first half, I want to know what you’re going to do in the second half and 2012.’ And the market is saying, ‘Whatever you think volume and revenues are going to be, you’re too high,’” Nesvold said.

A version of this article appeared in the print edition of The Daily Star on August 05, 2011, on page 5.




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