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GM tops 2Q profit forecasts on trucks and SUV sales

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DETROIT (AP) — Big profits from trucks and SUVs helped General Motors overcome a sales slowdown in China, economic problems in Venezuela and payments to ignition switch crash victims as the automaker’s second-quarter net income rose sixfold to nearly $1.12 billion.

The Detroit company made 67 cents per share from April through June compared with 11 cents a year ago. The year-earlier quarter included $1.5 billion in expenses for a string of safety recalls. GM’s $2.8 billion pretax profit in North America was a second-quarter record.

The strong profits helped GM distance itself from the recalls. Still, the company raised its estimate for what it will spend to compensate victims of crashes caused by defective ignition switches from $600 million to $625 million. Chief Financial Officer Chuck Stevens called it a final estimate, although GM still faces multiple lawsuits and a potentially large penalty from a Justice Department criminal investigation.

GM also said Thursday that it expects pretax profits to be better in the second half than the first, when it made $5 billion. Shares jumped more than 7 percent as the market opened.

Excluding $1.1 billion in special items, GM made $1.29 per share, handily beating the $1.08 average of seven analysts surveyed by Zacks Investment Research. Among the special items were $720 million for currency devaluation and asset write-downs in Venezuela and $75 million to compensate ignition switch crash victims.

Faulty ignition switches that can unexpectedly shut off engines in older GM small cars are responsible for at least 124 deaths and 269 injuries, according to a fund set up by the company to compensate victims.

GM’s sales in China fell 1 percent during the quarter as the market slowed, and its sales increase of 1.9 percent in the U.S. trailed the industry’s overall gain. But the company said its sales were highly profitable, with SUVs and pickup trucks bringing in more dollars per vehicle. Kelley Blue Book estimated GM’s average U.S. selling price at $37,025 for the quarter, up 3.3 percent from a year ago.

In China, GM introduced two new SUVs during the quarter, helping to boost sales, Stevens said. “Our SUV sales across the business are up more than 80 percent,” he said. The company also cut costs and became more efficient in China, where it will continue to invest in new products despite slowing growth, he said.

So far this year, GM has spent $2.1 billion buying back shares and has spent $1.1 billion on dividends. Under pressure from activist investors, GM agreed to repurchase $5 billion of shares by the end of 2016.

Overall, the company reported a 7.5 percent profit margin, the percentage of revenue it gets to keep. It expects to reach a 9- to 10-percent profit margin by early next decade.

The automaker posted revenue of $38.18 billion in the quarter, missing Street forecasts. Four analysts surveyed by Zacks expected $40.11 billion.

GM shares rose $2.25 to $32.55 in trading early Thursday. They have fallen 7 percent since the beginning of the year, while the Standard & Poor’s 500 index has climbed roughly 3 percent.

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