GM Nets $1.51 Billion, Best Quarter in 4 Years

A surge in its U.S. car production sparked the best quarterly financial performance at General Motors in four years, the giant auto maker reported Thursday.

GM said it earned $1.51 billion during the second quarter, up 29% from $1.17 billion last year, and analysts attributed most of the increase to GM’s U.S. car and truck operations.

The company produced about 200,000 more cars in the United States in the second quarter than it did in the first three months of 1988, as sales incentives, low inventories of unsold models and unexpected strength in consumer demand led GM dealers to increase their orders. GM earns its money on sales to its dealers, rather than on retail sales to consumers.

“This is not because of some quirky accounting change, this is a fundamental improvement in earnings power,” said Jack Kirnan, an automotive analyst at Kidder, Peabody & Co. in New York.

Kirnan noted that GM’s newest car lines are finally starting to give the company some benefit on the bottom line. Chevrolet’s Corsica-Beretta mid-size models, for instance, are now outselling Ford’s Taurus-Sable lines, Kirnan observed.

Third Best Ever

“You’ve got a huge jump in the contributions to earnings from GM’s North American automotive operations,” he said. GM’s big subsidiaries, including Hughes Electronics, Electronic Data Systems and General Motors Acceptance Corp., its car financing unit, account for most of GM’s profit.

GM said the second-quarter earnings marked the third-best quarterly performance ever for GM and the best since the second quarter of 1984, when the company posted profits of $1.61 billion.

But analysts don’t believe that GM’s second-quarter earnings were high enough to overtake Ford in profitability. Ford, which has yet to announce second-quarter profit, is expected to report that it earned about $1.6 billion during the period, up slightly from last year’s record of just under $1.5 billion. Chrysler, meanwhile, is likely to be the only member of the Big Three to post a drop in earnings. Analysts expect Chrysler to report that it earned about $330 million, down from $428.7 million last year, as a result of higher sales incentive and engineering costs.

Some industry analysts also cautioned that the surprising strength in GM’s second quarter probably does not mark a turning point for the long-troubled auto maker. Although the company’s share of the U.S. auto market has risen about three percentage points since the fourth quarter of 1987, GM’s share is still below the level of a year ago. GM has yet to regain many of the customers who have gone elsewhere in recent years.

“I don’t think we are seeing any real improvement in market share,” said David Healy, an automotive analyst with Drexel Burnham Lambert in New York. “I think all we are seeing is some stabilization--GM’s share has stopped falling.”