Greg Gardner

Detroit Free Press

General Motors earned $2.9 billion in the second quarter, exceeding Wall Street's expectations as sales growth recovered in China and Americans continued buying expensive trucks, SUVs and crossovers.

On an earnings per share basis, GM made $1.86, better than the average estimate of $1.51 from 14 analysts surveyed by Thomson Reuters.

The company also raised its earnings guidance for the full year to between $5.50 and $6 per share from a previous range of $5.25 to $5.75.

Investors responded by driving GM shares up by $1.12, or 3.5%, to $32.61 in mid-morning trading.

Revenue for the April through June period rose to $42.4 billion from $38.2 billion in the year-earlier quarter.

The results were GM's best for any quarter since it emerged from Chapter 11 bankruptcy in July 2009.

"This was an outstanding quarter for GM," Chairman and CEO Mary Barra said in a statement. "Our results were generated by strong retail sales in the U.S., record sales in China and a continued emphasis on improving performance of our operations worldwide."

Once again, North America carried most of the load. The automaker earned $3.6 billion before taxes in its home market.

Americans are buying and leasing new vehicles at about the same pace as 2015's record pace. More than its domestic competitors, however, GM has de-emphasized sales to rental car fleets because they are less profitable, on average, than retail sales to individual consumers.

So far that strategy seems to be working. Before taxes, GM's North American profit margin increased to 12.1% in the quarter from 10.5% a year earlier. In other words, the company made more money selling fewer vehicles between April and the end of June than it did a year ago.

GM has seen its U.S. market share drop to a historic low, as other company's have continued to allocate large portions of their sales to the rental agencies. But Chuck Stevens, GM chief financial officer, said that it's U.S. market share should rise in the second half of the year.

The North American profit increase also came despite increased discounts and 0% financing on the Chevrolet Silverado, the company's very profitable fullsize pickup truck.

For the first time since the second quarter of 2011 GM made a profit ($100 million) in Europe. Its goal is to report a full-year profit in that region for the first time since 1999.

There was no significant second-quarter impact from the June 23 vote in the U.K. to leave the European Union. GM and its Vauxhall Motors brand operate two assembly plants in Ellesmere Port and Luton, as well as a technical center.

But GM Chief Financial Officer Chuck Stevens said the negative impact of a declining pound sterling and the uncertainty surrounding Britain's ability to export goods and services to the rest of Europe could impact GM by up to $400 million in the second half of the year.

Asked if GM has considered moving production out of the U.K., Stevens said, "Everything's on the table as we see how this plays out."

During the three months ended June 30, the only money-losing region for GM was South America where it lost $100 million, about the same as a year earlier.,

In China GM reported equity income of $500 million from its joint ventures. Sales of those joint ventures increased 11.8% from the second quarter of 2015.

GM Financial, the automaker's financial unit, earned $300 million before taxes, up from $200 million a year earlier. The auto lending business continues to benefit from low interest rates.

The strong second-quarter results likely will raise questions about the possibility GM could increase a $9 billion share buyback plan now under way through the end of 2017.

GM generated $5 billion in cash during the quarter. Its goal is to generate $6 billion this year and $6 billion to $7 billion in 2017.

"To the extent we perform better than that generate more than that it will be returned to shareholders," Stevens said. "Right now we are not changing our view on returns to capital."

On another matter, GM clarified that it paid $581 million for Cruise Automation, the San Francisco autonomous vehicle startup. Stevens said half of that was paid in cash and half in GM stock.

He added that there will be additional costs related to the Cruise deal related to retention of key employees, but the price is significantly less than the $1 billion widely reported.

Contact Greg Gardner: (313) 222-8762 or ggardner@freepress.com. Follow him on Twitter @GregGardner12