GM is expected to announce Q2 profit of around $2.40 a share later today, a result that will undoubtedly please investors but leave some residual concern over the longer-term outlook. Such a result compares favourably with year-ago results (profit doubled) and owes much to GM’s aggressive incentives driven volume growth in the US marketplace.
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So far this year, vehicle production in the US is 7.2% ahead of the same period of last year and the market is running well ahead of earlier expectations, driven by customer incentives. This month, GM has renewed no-interest loans on certain models.
However, the company’s loss-making European operations are still acting as a drag on the overall results.
Looking ahead, analysts say that the trend erosion of margins in the US marketplace and the stiff competition provided by import marques is bad news for the Detroit Big Three. If the overall market is adversely affected by broader macroeconomic trends and worsening consumer confidence, the second half of the year could see a marked deterioration in financial results.
There are also concerns about the costs, following acquisition, of absorbing and integrating Daewoo Motor’s operations into GM’s organisation.
Pension fund costs have also emerged as an issue following recent stock market losses. GM and Ford shares have been battered recently on worries over the billions of dollars in pension and health-care liabilities facing the automakers, especially GM.
