Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



GM's Profit Makes You Go "Hmm"

Following the report of a profit at Ford (NYSE: F  ) the other day, General Motors (NYSE: GM  ) was not about to be outdone and also recorded a second-quarter profit.

The North American market is seeding the soil of the carmakers' problems. Both GM and Ford are finding that they'll have to resort to some of the tricks that led them to the straits they're in if they hope to grow sales.

In particular, General Motors launched financing deals this past weekend on its line of pickups and SUVs to keep it competitive with incentives that Ford, DaimlerChrysler (NYSE: DCX  ) , and Toyota (NYSE: TM  ) have been employing to lure people back to the truck market. Higher fuel costs have been causing inventories to rise, and according to market-research firm Autodata, GM's inventories are 40% higher than those in the rest of the industry.

The top U.S.-based carmaker saw its net income more than double to $1.4 billion this quarter, helped by a stronger showing in Europe, where adjusted net income climbed 65% to $236 million on the basis of firmer pricing. Market share outside North America also increased to 9.4%, up 20 basis points from last year. Here at home, though, market share continued to slide.

Despite the improved numbers, U.S. carmakers still have deeply ingrained structural issues that need to be resolved. Just as with Ford, General Motors is looking at a union-run, independent trust fund to finance its health-care benefit obligations. While the $1 billion pact that Goodyear (NYSE: GT  ) hammered out with its unions is seen as the model to follow, the carmakers have tens of billions of dollars more than the tire maker was trying to unload from its balance sheet.

GM will benefit partially from the sale of its Allison Transmission division for $5.6 billion, though it is hard to determine when the deal will be completed, because its buyers have had trouble obtaining financing. With union talks coming up, GM may find itself strapped for cash.

Yet investors can take some solace in knowing that GM was able to post $78 million in adjusted profits in North American continuing operations, even if volumes were lower. It's certainly better than the $94 million loss the company recorded last year. Automotive net losses in the region, too, narrowed to $39 million from nearly $4 billion a year ago -- a reflection, no doubt, of the sharp restructuring the carmaker has been attempting.

Despite appearances to the contrary, profits are not yet the norm with American car manufacturers -- it remains a deeply troubled industry.

Drive off with these related Foolish articles:

Looking for undervalued stocks with great potential? Look no further than Motley Fool Inside Value. A free 30-day trial awaits you.

Fool contributor Rich Duprey owns shares of Ford and Goodyear but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 533151, ~/Articles/ArticleHandler.aspx, 10/25/2016 6:28:44 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 9 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:00 PM
GM $32.98 Up +0.94 +2.93%
General Motors CAPS Rating: ***
DCX.DL $9.70 Down +0.00 +0.00%
F $12.19 Up +0.17 +1.41%
Ford CAPS Rating: ****
GT $31.72 Up +0.12 +0.38%
Goodyear Tire and… CAPS Rating: ***
TM $115.45 Up +0.18 +0.16%
Toyota Motor CAPS Rating: ***