UPDATED: 7/23/14 3:56 pm ET -- updates GM stock price
DETROIT (Bloomberg) -- General Motors Co.’s Mary Barra is projected to report her second straight quarter of rising sales, adding to evidence that the CEO is weathering the biggest wave of recalls in U.S. automotive history.
Second-quarter revenue may rise 2.7 percent, the average of estimates compiled by Bloomberg.
Barra, who has been before congressional panels four times in six months as the first female CEO of a global automaker, is benefiting from booming demand for redesigned large SUVs and heavy-duty pickups introduced on her watch even as she’s grappled with the almost 29 million vehicles recalled in North America, including 2.59 million compact cars with potentially faulty ignition switches linked to at least 13 deaths. GM today announced another recall totaling 718,000 vehicles, bringing the total number of recalls this year to 60. GM shares declined 35 cents to $37.41.
“From a legal, fiduciary, protecting-the-franchise standpoint in the congressional testimony environment, I thought she was phenomenal,” Adam Jonas, an analyst with Morgan Stanley, said Tuesday in a telephone interview. “She navigated a minefield in a way that was really, really good.”
While recall headlines have dominated in the U.S., sales have increased, rising 2.5 percent through June. The total U.S. market rose 4.3 percent during the same period. GM’s results have been helped by new SUVs such as the Cadillac Escalade, which rose 18 percent in the first half, and GMC Yukon, which gained 54 percent. The Buick brand, helped by the new Encore small SUV, rose 13 percent.
The sales gains come as GM reduces its spending on incentives, according to researcher Autodata Corp. The average spending per vehicle on light-duty trucks fell 10 percent during the first half while Ford Motor Co.’s truck spending rose 2.3 percent.
“We expect GM results to improve markedly in 2Q, as the profit impact of transitioning to a new line of full-size ‘heavy-duty’ pickup trucks and large SUVs goes from a modest headwind in 1Q to a significant tailwind in 2Q,” Ryan Brinkman, an analyst at JPMorgan Chase & Co., wrote in a note to investors.
While GM earnings beat analysts’ estimates in the first quarter, shares fell at one point during the day by $2.18 after CFO Chuck Stevens suggested the better-than-expected performance pulled ahead earnings from later in the year.
“We performed better than expected in the first quarter so we’ll have to trim some of the expectations Q2 through Q4,” Stevens told analysts during a conference call on April 24.
Encouraged by the second quarter, some analysts such as Itay Michaeli of Citigroup Inc. expect GM will forecast an accelerating second half. Second-quarter earnings per share may slide by almost a third to 58 cents. The company projected a $1.2 billion charge in the quarter for recalls.
“If you set aside the ignition-switch disaster, GM has produced an array of cars that people really like,” said Erik Gordon, a professor at the Ross School of Business at the University of Michigan in Ann Arbor. “It’s hard to remember that because the ignition recall is such a disaster.”
Truck production, including light- and heavy-duty pickups and large SUVs, rose 18 percent through June compared to a year ago to reach the highest level since the fourth quarter of 2007, estimated Brinkman. GM built more Cadillac Escalades than in any quarter since the first three months of 2008, he wrote.
Average transaction prices on the Escalade “are through the roof,” he wrote. “We expect ‘Suburban-sized’” North American profits excluding recall costs, he said, referring to the large Chevrolet SUV.
Barra, 52, who became CEO in mid-January, has ensured her place in history for her handling of GM’s largest crisis since the 2009 government-backed bankruptcy. She arrived on the job with a groundswell of goodwill -- President Barack Obama, for example, noted her rise during his State of the Union speech on Jan. 28. The warm glow quickly faded, however, as Barra found herself grappling with the growing recall crisis in February.
She spent much of her first three months on the job coming to terms with the discovery that the company had dragged its heels for more than a decade before properly addressing faulty ignition switches in Chevrolet Cobalts and other small cars.
She’s said she first learned of the recall on Jan. 31, after a company committee had decided to issue it. Things got worse from there as more and more models were determined a danger until the safety reached 2.59 million small cars. GM in the first quarter took a $1.3 billion charge for recalls, including $700 million associated with those compact models.
'Saturday Night Live'
It all came to a head for her in early April when she testified before U.S. House and Senate panels investigating the matter. Awaiting the results of an investigation by former U.S. Attorney Anton Valukas, she had little to say beyond apologizing and pledging to make things right. Her evasive answers and insistence that the flawed cars and bad behavior represented only Old GM became the grist of late-night comedians, including a skit on "Saturday Night Live."
A lot of the second quarter was spent containing the fallout. She replaced the heads of public relations and human resources with trusted confidantes as she put her stamp on the organization and reorganized the engineering department with greater emphasis on dealing with potential safety concerns.
She oversaw a quick settlement with the U.S. Department of Transportation that included paying a maximum fine of $35 million and agreeing to unprecedented oversight aimed at changing the company’s culture when it comes to safety.
She made public the results of Valukas’s internal investigation, which found a lack of urgency in the engineering and legal departments coupled with fundamental failures to understand how the company’s cars worked. She announced the ousting of 15 employees at a town hall forum with about 1,000 employees that was broadcast around the world.
“I want you to never to forget it,” Barra told employees. “This is not just another business crisis for General Motors. We aren’t simply going to fix this and move on.”
She tasked Kenneth Feinberg, who ran funds for victims of the Sept. 11 terrorist attacks and the 2010 BP Plc oil spill, with creating a program to pay victims and their families.
And she continued to clean house, flushing the company of safety problem after safety problem -- including four recalls of less than 100 vehicles and about 17 million vehicles for ignition issues, including more than 12 million in June alone. The number of recalled vehicles reached almost 29 million by the end of June -- almost three times the number of vehicles GM sold last year around the world.
As more than half a million of the small cars have been brought in for repairs, many owners have become customers again: buying GM’s new and better models.
Barra returned to the Senate for another hearing in July, this time receiving praise from one of her harshest critics. “Mary Barra has stepped up and with courage and conviction has confronted head on the problem and the corporate culture that caused it,” said U.S. Sen. Claire McCaskill, D-Mo. “Some see the record number of recalls at General Motors as a problem. I see it as a good sign.”
Beyond the glare of the recalls, Barra has had to guide GM along other rough roads as well. GM sales in South America slipped 18 percent in the second quarter as deliveries in Brazil declined 13 percent. Outside of China, the Americas and Europe, where GM is trying to stem losses, sales fell 3 percent as the company works to restructure operations in Asia.
While China sales rose 8 percent in the quarter, helping fuel a first-half rise of 11 percent, the pace failed to keep up with Volkswagen AG. VW’s China deliveries, including Hong Kong, rose 18 percent during the first six months of 2014. It was GM’s best second quarter of sales since 2005.
GM, the world’s biggest car company by vehicle sales in 2011, slipped to third place last year behind Toyota Motor Corp. and Volkswagen. Including VW’s MAN SE and Scania AB heavy-truck units, the German automaker edged out GM as the second-largest automaker with 9.73 million deliveries last year. GM sold 9.71 million vehicles.
VW said this month that global sales, excluding trucks, increased 5.9 percent to 4.97 million in the first half, outpacing GM’s 1.4 percent gain to 4.92 million during the same period.
Barra has withstood a lot of turbulence in her first half-year on the job. There’s more she and GM will need to do, said Brian Johnson, an analyst with Barclays Plc.
“A lot of things thrown at her and she’s done a solid job,” he said in a telephone interview. “Now we’re looking for, as she gets this behind it, some vision of how she’s going to drive the next leg of cultural change beyond paying more attention to safety.”