By Greg Gardner; Detroit Free Press ~ Aug 11, 2010

General Motors will trumpet continued profit improvement Thursday amid a prolonged economic slump, but how it invests those profits may determine whether the bottom line will look even better in the next year and beyond.

Corporations across the globe are hoarding cash and blaming an uncertain regulatory environment. Potential investors in GM's initial public offering will be more impressed if the company uses that money to launch and develop new products and even hire workers as sales gradually improve, said Jeff Schuster, J.D. Power and Associates' head of global automotive forecasting.

"The market is better. It's just not a robust increase," Schuster said. "The best plan of action would be for GM to stay the course, launch new products and maintain discipline not to overproduce."

The higher GM's second-quarter profit, the harder CEO Ed Whitacre will push for the government to sell at least some of its 60.8% stake.

Completing an initial public offering at a price that will repay the government in full, however, depends as much on broader economic conditions as on GM's leaner cost structure. In the U.S., that outlook is not great. J.D. Power expects industry sales of 11.7 million this year. IHS Automotive recently cut its estimate from 11.8 million to 11.5 million.

"People are making do with vehicles that last much longer than they used to," said IHS Automotive analyst Aaron Bragman. GM has been profitable for some time in China, Brazil and other emerging markets. Chinese consumers are expected to buy between 14.5 million and 15 million new vehicles this year, surpassing last year's 13.6 million and beating the U.S. as the largest auto market for the second straight year.

To understand GM's progress in its home market, consider the following:

• Second-quarter production from its North American assembly plants rose 85% to 730,314 cars and trucks from the same period in 2009.

• Whitacre said GM may restart one of two idled factories put on standby last year.

• It sold 673,400 vehicles in the U.S., Canada and Mexico between April and the end of June, up 12% from a year earlier, despite closing or selling the Pontiac, Saturn, Hummer and Saab brands.

• Incentive costs were about $1,200 lower.

Contact GREG GARDNER: 313-222-8762 or [email protected]