General Motors Earns $1.5 Billion Or $2.63 Per Share In Second Quarter - U.S. Market Share Rises To 28.1 Percent

DETROIT – General Motors Corp. today reported earnings nearly doubled in the second quarter of 2002 compared with the prior-year period, reflecting improved retail sales performance, increased production in North America, and a continued focus on cost reduction.

GM earned $1.5 billion, or $2.63 per diluted share of GM $1-2/3 par value common stock, in the second quarter of 2002, excluding Hughes and an after-tax charge of $55 million, or $0.10 per share, for costs associated with end-of-life vehicle recycling in Europe (see Highlights). That compares with $766 million, or $1.37 per share, in the year-ago period, excluding Hughes and a charge of $133 million, or $0.23 per share, related to the write-down of Isuzu Motors Ltd. Revenue in the second quarter of 2002 increased to $46.0 billion from $44.2 billion in the same period last year.

Including Hughes and the end-of-life vehicle charge, GM’s second-quarter-2002 net income totaled $1.3 billion, or $2.43 per share, on revenue of $48.3 billion. That compares with net income of $477 million, or $1.03 per share, including Hughes and the Isuzu write-down. Revenue in the second quarter of 2001 totaled $46.2 billion.

GM financial results described throughout the remainder of this release exclude special items unless otherwise noted (see Highlights).

"We are pleased by the strong performance of GM's North American operations in the second-quarter and the solid results at GMAC," said GM Chairman Jack Smith. "We are determined to maintain our momentum in the second half of the year."

"The second-quarter results show that our strategy of bringing out great products, being aggressive in the marketplace, and intensely focusing on reducing costs and improving quality is working," said GM President and Chief Executive Officer Rick Wagoner. "Because of our improved cost base, we are able to be competitive with our pricing and improve our financial performance at the same time.

"GM’s automotive operations generated $3.5 billion of cash flow during the quarter, allowing us to improve net liquidity even as we took additional steps to strengthen the balance sheet," Wagoner added.

GM’s net liquidity position improved by $300 million during the quarter to $2.6 billion even after taking into account cash contributions of $3.2 billion during the quarter to fund pensions and other post-retirement benefits. GM previously announced a $2.2 billion cash contribution to its U.S. hourly pension plan in April. In June, GM made a $1 billion cash contribution to the long-term Voluntary Employees’ Beneficiary Association (VEBA) Trust.

Cash, marketable securities, and assets of the VEBA trust invested in short-term fixed-income securities, excluding Hughes, increased to $17.6 billion at June 30, 2002, from $17.3 billion at March 31, 2002. Debt, excluding Hughes, remained unchanged at $15.0 billion at the end of the second quarter of 2002.

Earlier this year, GM set a goal of raising $10 billion in cash in 2002. As of June 30, 2002, GM has nearly achieved this annual objective by generating $4.8 billion in cash from automotive operations and by executing $4.6 billion in retail and convertible debt offerings.

GM AUTOMOTIVE OPERATIONS

GM's global automotive operations earned $1.1 billion in the second quarter of 2002, compared with $410 million in the prior-year period. Global production increased nearly 7 percent in the second quarter, compared with the same period in 2001. Strong performance in North America was partially offset by losses in Europe and Latin America.

Income at GM North America (GMNA) more than doubled in the second quarter of 2002 to more than $1.2 billion from $521 million in the year-ago period. Production volume increased nearly 14 percent.

GM's overall U.S. market share increased to 28.1 percent in the second quarter of 2002, driven by gains in both passenger cars and trucks. That compares with 27.3 percent in the year-ago period. GM’s quality of share continued to improve in the second quarter of 2002 with retail share rising to 27.4 percent from 26.7 percent in the year-ago quarter. Trucks as a percentage of total sales increased to 54 percent in the second quarter, up from 52.2 percent in the same period last year.

Wagoner attributed the market share gains to the successful introduction of new products such as the Cadillac CTS, Chevrolet TrailBlazer, GMC Envoy, Saturn VUE, and the Pontiac Vibe, as well as continued strong performance of GM’s full-sized trucks and sport utility vehicles.

"We continue to introduce a steady stream of new products, which are key to our success in the marketplace," Wagoner said. "Right now, extended versions of our popular Chevy TrailBlazer and GMC Envoy are on their way to dealers, along with the all-new HUMMER H2."

Other key products on their way to showrooms later this year and in 2003 include the Saturn ION sedan and coupe, the Chevy SSR, all-new versions of the Saab 9-3 convertible, the Pontiac Grand Prix, the Chevy Malibu, the Cadillac XLR luxury high-performance roadster, the Cadillac SRX crossover vehicle, the Buick Rainier sport utility vehicle, the Opel Vectra Wagon, and new Meriva monocab in Europe and Brazil. In addition, there are enhanced versions of the Chevrolet Cavalier and Pontiac Sunfire, the Saturn L series, and restyled full-size Chevy and GMC pickup and utility models.

In addition to the momentum generated by these new products, GM continues to make important strides in quality and efficiency. In the just-released J.D. Power and Associates 2002 initial quality survey, GM was the best performing domestic automaker, becoming the first U.S.-based manufacturer ever to achieve a top-three ranking.

GM was also recognized during the quarter for substantial improvements in productivity. According to an independent study by Harbour and Associates, GM outpaced all manufacturers with an overall productivity improvement of 4.5 percent in 2001. GM’s Oshawa 1 car plant in Ontario, Canada, was rated the most efficient assembly plant in North America, the first time a GM plant has earned that distinction, and GM plants led in six of 13 assembly plant segments.

"Our continued progress in quality and productivity shows our commitment to ongoing improvement in the fundamentals of our business," Wagoner said.

GM Europe (GME) reported a smaller loss in the second quarter of 2002 than the year-ago period, as the continued reduction in structural costs helped to partially offset a nearly 7-percent decline in production volume. GME had a loss of $115 million in the second quarter of 2002, versus a loss of $154 million in the prior-year period.

"GM Europe’s restructuring plan, Project Olympia, is showing results although the European market continues to weaken," Wagoner said. "We are moving aggressively to cut costs and better manage capacity utilization. Our joint ventures with Fiat Auto have produced meaningful savings, especially in material costs."

GM Asia-Pacific reported a profit of $39 million in the second quarter of 2002 compared with a profit of $12 million a year ago, led by a strong performance from Shanghai GM. GM Latin America/Africa/Mid-East (GMLAAM) reported a loss of $73 million in the second quarter of 2002 compared with a profit of $31 million a year ago. Results were negatively affected by unfavorable economic conditions in Brazil, Venezuela and Argentina.

GMAC

General Motors Acceptance Corporation (GMAC) earned $431 million in the second quarter of 2002, down slightly from the record second-quarter earnings of $449 million of a year ago. Income from Financing Operations was down slightly as higher credit losses and unfavorable borrowing spreads offset the positive effect of higher retail asset levels. Insurance Operations also reported lower earnings as the absence of capital gains more than offset continued improvements in underwriting results. Earnings from Mortgage Operations were higher, reflecting increased origination volumes in both the residential and commercial mortgage sectors. Overall, GMAC remains on track to achieve near-record earnings in 2002.

HUGHES

Hughes lost $156 million in the second quarter of 2002, unchanged from the loss of $156 million in the prior-year quarter. Revenue rose 11 percent to $2.2 billion in the second quarter of 2002 from $2.0 billion in the year-ago quarter, led by the growing subscriber base of DirecTV. Total DirecTV subscriptions increased approximately 202,000 from the first quarter of 2002 to 10.7 million. Regarding GM’s plan to split off Hughes and merge the company with EchoStar Communications Corp., GM recently received a favorable private-letter ruling from the U.S. Internal Revenue Service confirming the transaction would be tax-free to GM and its stockholders for U.S. federal income-tax purposes.

Regulatory reviews with the U.S. Department of Justice and the Federal Communications Commission are progressing and GM expects to complete the transaction before the end of the year.

LOOKING AHEAD

General Motors expects total U.S. industry vehicle sales for 2002 will be in the mid-to-high 16 million unit range. For 2003, GM expects total U.S. industry sales about the same as 2002, in line with trend volume. GM's forecast for North American production remains unchanged at about 1,245,000 vehicles in the third quarter of 2002 and more than 5.5 million vehicles in calendar year 2002.

General Motors is currently reviewing the appropriate carrying value of its investment in Fiat Auto Holdings, B.V. (FAH). FAH is the sole shareholder of Fiat Auto, S.p.A. GM acquired 20 percent of the common stock of FAH in July 2000 for $2.4 billion. Following the acquisition, the European automotive market has experienced a continued decrease in sales volume and manufacturers have experienced increased pricing and general competitive pressures. Those market conditions and other factors have led to deterioration in the performance of Fiat Auto S.p.A. GM now believes that it is probable a significant write-down of its investment in FAH will be required in the third quarter of 2002, upon completion of the review.

For the third quarter of 2002, GM estimates its earnings, excluding Hughes and any special items, will be approximately $0.90 per share, reflecting solid results in North America, partially offset by continued losses in Europe and Latin America.

GM continues to expect calendar-year-2002 earnings will be $6.00 per share, excluding special items and Hughes. Including Hughes, but excluding special items, GM expects to earn about $0.80 per share in the third quarter of 2002 and $5.60 per share for the calendar year.