Low gas prices have helped boost sales of GM's biggest SUVs -- and that boosted GM's profits in the second quarter. Source: General Motors.

General Motors (GM -2.48%) reported sharply higher second-quarter earnings on Thursday, as strong sales of its most profitable vehicles drove better-than-expected profits.

Excluding special items, GM earned $1.29 a share, well ahead of Wall Street's $1.08 estimate.

GM shares rose over 6% in premarket trading on the news. 

GM's net income of $1.12 billion was more than triple the $278 million it earned in the year-ago period, when recall costs took a huge bite out of the automaker's bottom line. While revenue fell to $38.2 billion, a $1.4 billion drop, GM said that was more than explained by unfavorable exchange-rate shifts.

The story here is simple and good: GM generated terrific results in its two largest markets, the U.S. and China.

Strong sales and margins in GM's two biggest markets
In recent weeks, analysts have expressed concerns about GM's efforts in both the U.S. and China, by far the automaker's two most important markets. In the U.S., GM has lost some market share on sharply lower sales of several of its car models. In China, an economic slowdown has led to lower industrywide sales and put pricing pressure on some key GM rivals.

GM's stock price had lost ground on both of those concerns. But both turned out to be unfounded: Strong sales of trucks and luxury vehicles in both regions helped boost earnings.

In North America, GM reported operating income of $2.8 billion, roughly double its year-ago result. About half of the difference was due to lower recall costs -- but increased sales of high-priced pickups and SUVs were also a significant factor. GM's operating margin in the region was 10.5%, an outstanding result and its eighth consecutive quarterly year-over-year increase.

The all-new Buick Envision SUV has been a big hit in China. Source: General Motors

In China, GM's equity income from its joint ventures rose slightly to $503 million. GM had managed to eke out a small increase in sales in the first half despite tough conditions. But concerns about pricing pressure were unfounded: New SUV models -- particularly the hot-selling Buick Envision -- and increased sales of high-margin Cadillacs drove a strong 10.2% margin.

Europe is improving, but South America needs more work
Elsewhere, GM's results were a mixed bag. In Europe, a longtime trouble spot, GM very nearly broke even despite ongoing weakness in the Russian market. GM Europe's loss of $45 million was a big improvement over the $305 million it lost a year ago. Industrywide, new-vehicle sales in Western Europe are finally growing after years of stagnation, and GM's Opel brand has managed an increase in market share. GM still expects to post a profit in Europe next year.

GM's "International Operations" unit includes its vast Chinese operation as well as sales in much of Asia, Africa, and Australia. As noted above, China did well -- but the unit as a whole posted nearly flat year-over-year performance, earning $349 million versus $315 million a year ago. Slowing sales in Thailand, Africa, and Australia largely offset GM's continued strength in China.

GM South America continued to struggle, losing $144 million in the second quarter versus an $81 million loss a year ago. A sharp recession in Brazil, the region's largest market, has clobbered new-vehicle sales -- industrywide sales fell 23% in the second quarter -- and low-priced competition has undermined GM's sales and pricing. GM is pushing hard to restructure and reduce costs, and says that results should improve in the second half of the year.

Special items and cash flow
GM's net income included the impact of about $1.1 billion in special items. Roughly $600 million of that was due to a previously announced accounting change related to the devaluation of Venezuela's currency. The remainder included a $75 million increase in GM's ignition-switch recall settlement fund, and charges related to restructuring in Russia, Thailand, and Venezuela.

GM's free cash flow was $3.3 billion for the quarter, after $1.8 billion in capital expenditures. GM ended the quarter with $22.8 billion in cash on hand and another $12.1 billion in available credit lines, for total liquidity of $34.9 billion.

The upshot: Despite headwinds, GM is still on course
"We said our goal was to improve our earnings and margins this year, and we are on-plan," CEO Mary Barra said in a statement. GM officially affirmed its previous guidance and said that it expects pretax income and margins in the second half of 2015 to improve on the first half's results.

CFO Chuck Stevens did note that GM's previous guidance around South America -- that full-year profits would improve over 2014 results -- is "at risk" due to ongoing challenges. But both Barra and Stevens expressed confidence that GM would continue to deliver strong performance in China and sustain its momentum in North America, and their overall outlook remains upbeat.