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GM Rides Out Slack Economy to Post Gains : Autos: Cutting costs helped earn a second-quarter profit overseas and narrow losses in its North American operations.

July 30, 1993|DONALD W. NAUSS | TIMES STAFF WRITER

DETROIT — The revival at General Motors Corp. gained momentum in the second quarter as the auto maker reported Thursday that it turned a profit overseas and continued to narrow losses in its crucial North American operations.

GM, which earned $889.1 million in the three months ended June 30, joined Chrysler and Ford in notching strong profits; together, the Big Three reported combined second-quarter income of $2.35 billion, the auto industry's strongest quarter in four years.

"We are showing a good trend," said G. Richard Wagoner, GM's chief financial officer, at a press briefing.

The gains reflect a sales rebound. Though the nation's economy has been anemic, consumers have taken advantage of low interest rates and attractive financing deals to trade in aging vehicles.

Moreover, the U.S. car makers' gains have come at the expense of Japanese producers, whose costs and prices have risen with the strengthening yen.

GM, the nation's largest car and truck producer, said second-quarter sales increased 3.9% to $36.33 billion. That helped GM stop the drop in its market share, which now stands at 34.1% of the U.S. car and truck market.

The second-quarter income translates to 92 cents a share, contrasted with a loss of $1.18 a share, or $703.2 million, in the same period a year ago. The 1992 loss included a one-time, $749-million restructuring charge for Hughes Aircraft Co.

Still, the bulk of GM's earnings--about $695 million--reflected the profits of non-automotive subsidiaries: finance, Hughes Electronics and EDS computer services.

The results were slightly better than Wall Street analysts were predicting, although several warned that GM's performance could slide in the normally slower third quarter. On Thursday, GM's shares closed at $47.50, up 50 cents in New York Stock Exchange trading.

"The company seems on track in their cost-cutting efforts," said David Garrity, auto analyst for McDonald & Co. Investments. Garrity said GM's success bodes well for the entire industry as it looks for ways to eliminate inefficiencies and become more competitive globally.

Despite the improved earnings, GM continues to bleed losses in its North American operations. The company reported a second-quarter loss of $95 million in the division, compared to a loss of $761 million in the year-ago period.

GM noted, however, that the losses had declined substantially. Before interest, taxes and charges for retiree health care, it made $675.3 million in its North American operations.

"We remain firmly on track to achieve this year's financial target for (North American operations)--to break even before interest, taxes and special items," GM Chief Executive and President John F. Smith said.

But he noted that there were several areas of uncertainty that could derail GM's comeback, including current contract negotiations with the United Auto Workers union and economic problems in Europe and the United States.

In Europe, which has been racked by recession, GM continued to be profitable. It also reported strong sales and income in Latin America. Overall, international operations reported earnings of $368 million in the second quarter, compared to $284 million a year ago.

Wagoner attributed the performance in Europe in part to cost-saving methods implemented there under the direction of former GM purchasing chief Jose Ignacio Lopez de Arriortua.

Lopez recently jumped to Volkswagen and has been accused of industrial espionage by GM. Lopez has denied the charges but is under criminal investigation in Germany and Washington.

Wagoner, who assumed GM's purchasing duties, said the company would continue to press forward with the cost-cutting ideas pushed by Lopez and his former staff, most of whom have stayed with GM.

"You can call it the Lopez approach if you want to," Wagoner said.

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