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General Motors gives investors a wake-up call

General Motors' bumper second-quarter results are a wake-up call for investors. Strong performances in North America and China show Chief Executive Mary Barra is getting America's biggest carmaker into the right gear. She can't hit cruise control yet. But the stock is trading below the 2010 IPO price and at a big discount to rival Ford Motor.

Adjusted earnings of $1.29 per share were nearly a fifth higher than Wall Street analysts' consensus estimate. A big part of the beat stemmed from strong demand for more profitable Chevy pickups, which helped push GM's North America operating margin to a record 10.5 percent for the quarter. GM also did well in China. Even its long-stalled European arm managed to just about break even.

That helped offset continuing weakness in Latin America and the negative effects of foreign currency swings, which dragged worldwide revenue down 3.5 per cent in the period. GM's return on invested capital - a measure of how effectively a company uses shareholders' money - also topped the 20 per cent target it agreed to in a deal with activist investor Harry Wilson in the spring.

It's a high point for Barra, whose first year at the wheel was overshadowed by the company's ignition-switch recall fiasco. She can't afford to rest easy, though. It took GM much longer than Ford to hit double-digit margins in North America - despite the strongest market for overall US auto sales in almost a decade. GM still has to prove it can sustain that level of profitability if and when demand sputters. China may also prove a challenge in coming months as the effects of the recent stock market meltdown ripple through the world's second-largest economy.

Still, the carmaker is finally firing on most, if not all, cylinders. Yet even after a five per cent jump in early trading Thursday, GM's shares remain below its $33-per-share 2010 IPO price. They also trade at a 40 per cent discount to Ford's on a ratio of enterprise value to Ebitda. With Barra's foot firmly on the gas, that gap deserves to narrow.