Sunday, July 30, 2006

GM global operations back in black

Thursday, July 27, 2006
GM global operations back in black
Christine Tierney / The Detroit News

DETROIT -- General Motors Corp. is still losing money in North America, but the U.S. automaker is holding its own in other regions where it's not handicapped by high labor and legacy costs.

GM's Asia-Pacific operations were its most profitable regional business in the second quarter, contributing $167 million, or nearly half of the company's $362 million in earnings from its global automotive operations.

The return to profit of GM's global automotive operations, which had been in the red since 2004, was due primarily to a dramatic improvement in its North American activities.

But GM North America still lost $85 million, excluding special items, in the April-to-June quarter, while the other regions all reported profits on that basis.

In the Far East, for instance, GM earns $530, on average, on each car and truck it sells. By contrast, it loses nearly $70 on each vehicle sold in its home market.

GM is downsizing its U.S. operations while building up some of its overseas activities. It has cut the number of employees in North America to 167,000 in the second quarter from 177,000 a year earlier, while more than doubling its Asia-Pacific work force to 34,000.

The biggest improvement in GM's overseas activities occurred in its Latin America, Africa and Middle East operations. Earnings surged to $156 million from $25 million, fueled by higher sales in Brazil and an expansion of GM's presence in the Middle East.

"This is a very good number," said GM Chief Financial Officer Fritz Henderson.

In Europe, however, GM is still struggling. It reported a jump in second-quarter profit to $124 million from $30 million, but the gain doesn't take into account a $182 million charge GM took in the quarter just ended for the planned closure of a factory in Portugal.

Merrill Lynch analyst John Murphy said GM's European earnings were in line with expectations, while the other regions' results were better than anticipated.

In late 2004, GM announced a deep restructuring of its European operations after years of losses.

But the European auto market grows increasingly competitive as low-cost Asian manufacturers make inroads, pushing local giants such as Volkswagen AG to overhaul their operations.

GM's market share in Europe slipped to 9.3 percent in the second quarter, from 9.6 percent.

The U.S. automaker is trying to bolster its presence in Europe partly by increasing sales of Chevrolet-branded vehicles developed by GM-Daewoo in South Korea.

"What's our opportunity in Europe? It's to leverage our scale," Henderson said. "No one ever said we're short of scale. We may be short of other things. But we've never been short of scale."

Henderson said Europe was one area that GM, Renault and Nissan Motor Co. executives would study in assessing the potential benefits of a three-way alliance.

Henderson, brought back to Detroit to help with the U.S. turnaround, previously headed GM Europe and prior to that, GM Asia-Pacific.

In recent years, GM has reaped big benefits from its timely investments in China. Its share of the big and fast-growing Chinese market had risen to 12 percent in the second quarter from 11.3 percent.

Its revenues in the Asia-Pacific region nearly doubled to $3.78 billion in the second quarter.

But its earnings slipped to $167 million from $183 million, reducing its profit margin in the region by more than half, due partly to rising price competition in China.

You can reach Christine Tierney at (313) 222-1463 or

© Copyright 2006 The Detroit News. All rights reserved.


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