GM earnings top forecasts despite Europe woes

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NEW YORK (CNNMoney) — Earnings at General Motors fell sharply due to “headwinds” in Europe, but still easily topped forecasts.

The world’s largest automaker reported that net profits were down 40% from a year ago to $1.5 billion, or 90 cents a share, in the second quarter. Still, that was well ahead of the 74 cents a share profit that analysts were expecting, according to Thomson Reuters.

GM shares jumped as much as 5% in premarket trading immediately following the report, but were slightly lower about an hour before U.S. market opens after the European Central Bank failed to take action to spur the economy there.

Total GM sales fell 5% to $37.6 billion, even as the number of vehicles sold worldwide edged up slightly.

GM’s operating profit in North America slipped 13%. But the big hit to earnings came from Europe, where GM lost $361 million. It was profitable in Europe a year earlier.

Sales in Europe fell in the face of high unemployment and widespread recession related to the European sovereign debt crisis.

GM’s international unit, which includes operations in China and other countries outside of the Americas and Europe, reported that profits fell just 3% from a year ago. But GM’s South American business posted a narrow loss.

The economic funk in Europe has become the most serious problem for the global auto industry. Last month, Ford Motor reported a 57% plunge in profits in the second quarter due to mounting European losses.

While Toyota Motor earnings are expected to improve when it reports results Friday, that’s because its operations where greatly affected by damage from the Japanese earthquake and tsunami last year. Toyota is also likely to note weaker demand in Europe.

Of the major U.S. automakers, Chrysler Group is the only one that has not been hurt by Europe, despite being owned by Italian automaker Fiat. That’s because Chrysler has a limited European footprint. Chrysler’s second quarter earnings were sharply higher.

Still, GM and other automakers may also have to contend with a weakening U.S. economy for the rest of the year.

GM reported a bigger than expected drop in U.S. sales in July. It was a disappointing month industrywide for car sales, raising worries that consumers are pulling back after strong demand in the first half of the year.

GM didn’t announce any immediate changes to stem losses in Europe, saying that operations there remain a challenging environment.

“We clearly have more work to do to offset the headwinds we face, especially in regions like Europe and South America,” said CEO Dan Akerson.

It recently shook up management of its European operations, naming vice chairman Stephen Girsky as the interim head of operations there. But the problems in Europe are deeply entrenched. GM estimates that it has lost $14 billion in Europe over the last 12 years.

Still, even with the problems in Europe and some softening demand for its cars at home, the results reported Thursday mark an impressive turnaround for a company that was in bankruptcy only three years ago and kept alive through a government bailout.

Thursday’s results marked the tenth straight quarter of profitability, a milestone it had not achieved in more than a decade.