Winnipeg Free Press - PRINT EDITION

GM profits take beating because of weak yen

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DETROIT -- Just as General Motors is getting a handle on its troubles in Europe, the automaker faces a new challenge in another part of the globe.

GM says Japanese automakers are using the weak yen to cut prices in Southeast Asia and Australia, taking a bite out of GM's profits there. Sales tailed off in India as well.

A subpar second-quarter performance in the company's international operations division pulled GM's overall profit down 16 per cent from last year, offsetting gains in North America and a stark improvement in Europe.

The company's shares fell 27 cents, or less than one per cent, to $36.88 in afternoon trading.

The Detroit automaker earned $1.26 billion from April through June, or 75 cents per share. That's down from $1.5 billion, or 90 cents per share, a year ago.

Still, GM handily beat Wall Street predictions when one-time items were excluded. On that basis, GM earned 84 cents per share in the quarter, nine cents better than the forecast of analysts surveyed by FactSet.

In North America, strong sales of pickup trucks drove pretax profit up 4 per cent to $1.98 billion.

U.S. sales of big pickups boomed in the first half, rising 23 per cent as the housing industry started to recover from the 2008 recession and small businesses started buying again. At GM, Silverado sales gained 26 per cent and Sierra sales rose 21, helping North American profits.

Pickups are GM's top-selling vehicles, and they bring in an estimated profit of $10,000 apiece.

Chief financial officer Dan Ammann said he expected improved performance in the second half as GM gets the full benefit of rolling out the new trucks, as well as the 2014 Chevy Corvette sports car, an all-new Cadillac CTS sedan and other new models.

"That's going to give us a good tail wind into the second half," he said.

But Ammann also described headwinds in Asia-Pacific countries outside of China. He said Japanese rivals used a weaker yen to cut prices, forcing GM to respond in kind and lowering its profits.

Although pretax income rose in China, GM's International Operations profit fell by $400 million to $228 million.

The Japanese yen has been falling against other currencies, making goods from Japan less expensive when sold in other countries. Ammann said Japanese automakers supply much of the Asia-Pacific region from Japan.

GM expects the trend to continue, and is trying to counteract it with new products and other unspecified actions, Ammann said.

Weakness in auto markets in India and Russia also contributed to the decline in international profits. Market conditions accounted for more than half of the drop in profit. Another chunk was warranty and recall costs. Ammann said the recall costs have continued into the current quarter.

The International Operations numbers troubled some industry analysts who were otherwise impressed with GM's performance.

"The GMIO headwinds indicate that GM's ex-China operations may remain challenged for some time," Barclays analyst Brian Johnson wrote in a note to investors.

In Europe, GM cut $284 million off its loss from last year, narrowing it to $110 million as cost cuts kicked in and new products such as the Opel Mokka small crossover SUV and Adam subcompact car sold well.


-- The Associated Press

Republished from the Winnipeg Free Press print edition July 26, 2013 B7

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