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GM Puts Obama in the Driver's Seat

DETROIT ( TheStreet) -- General Motors' (GM - Get Report) second-quarter earnings report released today revealed good news for investors: The biggest U.S. car company made money -- more than analysts had expected. And in the first half of the year, GM hired up to 3,000 workers.

There was another winner: President Barack Obama, who committed billions to save GM. As for chief rival Mitt Romney, it was bad timing after a string of bad luck. The Republican presidential candidate recently unveiled new ads in Ohio that focus on job losses that result from the shutdown of GM dealerships as part of its revamp.

The fact is that before it restructured, GM followed an industry model of making too many vehicles at too high a cost and then selling them at too many dealerships for too low a price. That wasn't sustainable.

GM did hit some roadblocks in the second quarter, particularly in debt-ridden Europe. And in July, its U.S. sales fell 6%.

The auto industry is a key focus of the two presidential campaigns, especially given its importance in battleground states Ohio and Michigan, the heart of car manufacturing. Obama campaigned in Ohio Wednesday. Earlier this month, he visited Toledo, where Chrysler makes the Jeep Wrangler and will make the Jeep Liberty.

During the second quarter, GM's net income fell by $1 billion, largely because it lost $361 million in Europe, reversing a year-earlier gain of $102 million. But the automaker still earned $1.5 billion, or 90 cents a share. Analysts surveyed by Thomson Reuters had estimated 74 cents.

On the GM earnings conference call, CEO Dan Akerson said that so far this year, four of five GM segments are profitable. General Motors North America is a "powerful earnings engine with the potential to become even stronger," he said. In Europe, "we haven't moved fast enough, but that's changed," with new management now in place, he said, noting: "Progress always comes faster if you approach unconstrained by the past."

In China, GM remains the No. 1 automaker, although it has been hurt by a shift in buying patterns that favors smaller cars over Chevrolet and Buick. "The overall market continues to be quite competitive with pricing pressure up and down the line," said CFO Dan Amman. In South America, GM is hurt because its production facilities are in high-cost areas near Sao Paulo, while Fiat and Volkswagen have factories in cheaper regions, burdening GM with an annual cost disadvantage of $300 million to $400 million. Further capacity action is planned.
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