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The Honolulu Advertiser
Posted on: Thursday, July 27, 2006

GM reports $1.15B 2nd-quarter profit

By Michael Ellis
Detroit Free Press

DETROIT — Opponents and backers of a proposed General Motors Corp. alliance with Renault SA and Nissan Motor Co. can agree on one thing: GM's surprisingly strong operating earnings can support their case.

Yesterday, GM announced a second-quarter operating profit of $1.15 billion, well above Wall Street estimates. The news fueled a rally in GM's shares and is evidence that GM's turnaround from last year's $10.6 billion in losses is working, GM CEO Rick Wagoner said in a statement.

"Our turnaround has not just gained traction, it's accelerating into high gear," Wagoner said. "Conventional wisdom is that you can't turn a ship as big as GM around quickly. We aim to prove that conventional wisdom wrong."

Without saying it outright, Wagoner's uncharacteristically bold statement implies that GM doesn't need an alliance with the French and Japanese automakers to fix its problems.

As a result of the success of its job-cutting plan, which spurred 34,410 union members — a third of GM's U.S. hourly work force — to accept early retirement or departure offers, GM raised its cost-cutting rate by $1 billion to $9 billion annually. That's an amount that Wagoner said was "unprecedented in this industry."

While GM cheered the results, those who believe GM needs an executive like Carlos Ghosn, chief executive of both Renault and Nissan, can point to underlying signs of weakness in North American car and truck sales.

"This does not bode well for the sustainability of earnings from the new products," Goldman Sachs analyst Robert Barry said in a note to clients.

GM's second-quarter operating profit of $2.03 a share, which excludes several charges, easily beat Wall Street estimates of a 53-cent-per-share profit. Total sales hit a record for the second consecutive quarter, rising to $54.4 billion from $48.5 billion in the year-ago period.

The benefits of GM's cost-cutting efforts, including cuts in jobs, benefits to salaried workers and other actions, will accelerate in the second half of the year, chief financial officer Fritz Henderson told reporters and analysts in a telephone conference call.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., and a fan of Wagoner, said the result strengthens Wagoner's position.

"Renault-Nissan may need the relationship more than GM," he said.

GM's stock price surged $1.34 or 4.4 percent to $32 on the New York Stock Exchange.

Including charges totaling $4.3 billion, mostly from job-cutting incentives, GM lost $3.2 billion, or $5.62 a share.