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Home / Business

Shares surge after GM posts strong result

27 Jul, 2006 09:28 AM3 mins to read

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DETROIT - General Motors has posted a larger-than-expected operating profit and raised its cost-cutting target by $US1 billion ($1.62 billion) as its restructuring takes hold, sending its shares to a 10-month high.

GM reported a wider net loss for the second quarter after writing down $US4.3 billion in costs mainly
associated with buyouts for almost a third of its factory workforce.

But excluding those restructuring charges, GM outperformed the most optimistic Wall St projections, spurring a rally in its stock and bonds that pulled shares of Ford higher as well.

GM raised its target for cutting recurring costs in North America by US$1 billion to US$6 billion by the end of 2006 after 34,400 workers accepted its buyout and early retirement offers.

Chief executive Rick Wagoner, who has been under pressure to show improvement as GM studies a possible three-way proposal with Nissan and Renault, said the results vindicated the company's strategy.

"Our turnaround has not just gained traction, it's accelerating into high gear," Wagoner said. "While significant work still remains, our ability to identify and initiate US$9 billion in cost cuts over the past year is unprecedented in this industry."

Shares of GM rose 5.8 per cent to US$32.43 on the New York Stock Exchange. The stock has gained more than 60 per cent since the year began.

Argus analyst Kevin Tynan said GM's results showed the carmaker was on the right track, though sustained gains would hinge on its success in moving beyond cost cutting.

"They have a good opportunity to convince a lot of people that what they are doing is working, at least in the near to intermediate term as far as the restructuring actions go," he said.

Some analysts questioned whether GM's momentum could be sustained, given high material costs and weakening demand for large SUVs in the face of high petrol prices.

"They're doing a good job of executing their restructuring plan," said Morningstar analyst John Novak, "but I'm concerned at their exposure to the economy - gas prices, interest rates, housing ... issues they have no control over and that I think are going to be a concern in the next 12 months. I'd feel much better about this if we were in the middle of a clear expansion."

GM chief financial officer Fritz Henderson said results for the final two quarters would show continued improvement against last year.

He said GM management would not back away from a commitment to study the possible benefits of an alliance with Nissan-Renault and the chief executive of those companies, turnaround specialist Carlos Ghosn.

About 10,000 workers have already left GM's payroll and most of the remaining 24,400 who accepted buyout offers will leave by the end of this year.

- REUTERS

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