GM Profit Falls 90 Percent From Year-Ago
DETROIT (AP) - General Motors Corp.'s first-quarter profit fell 90
percent compared with a year ago, citing losses in the home lending
operations of its former financial arm.
It was the second consecutive quarterly profit for the nation's largest
automaker, which said in Thursday's report it had record vehicle sales
worldwide and improvements in its automotive operations in the latest
But the profit of $62 million, or 11 cents a share, for the January-
March period was down from $602 million, or $1.06 per share, a year ago.
Its earnings excluding one-time items fell short of Wall Street
expectations and its shares fell nearly 4 percent in midday trading.
The company attributed the year-over-year decline to losses in the
residential mortgage business of GMAC Financial Services. GM sold a 51
percent stake in GMAC to private equity investors last year, but still
owns a 49 percent stake in the business.
"We were able to expand vehicle sales and improve automotive
profitability based on the progress in our turnaround initiatives in
North America and Europe and our expansion strategy for key growth
markets like China, Russia and South America," Rick Wagoner, GM chairman
and chief executive, said in a statement.
"We continue to see progress on the automotive bottom line as we
implement the strategies laid out two years ago."
While the automaker's North American performance improved, the company
still lost an adjusted $85 million on its core operations, GM said. A
year ago, GM reported an adjusted loss of $251 million in North America.
Investors appeared skeptical of GM's performance, sending its stock
price down $1.28 to $31.16 in midday trading.
Industry analysts focused on North America, with some questioning
whether GM's earnings would continue to be dragged down by GMAC, and
whether GM had cut its costs enough.
KeyBanc Capital Markets analyst Brett Hoselton downgraded GM to "Hold"
from "Buy" because of the credit deterioration in GMAC's residential
mortgage operation. He had rated GM favorably because he anticipated
cost savings and better sales from the launch of new pickup trucks.
Lehman Brothers analyst Brian Johnson also questioned his earlier
assumption that GM would see improvement from the rollout of new pickups.
"Without substantial labor concessions, meaningful improvements in
profitability are unlikely in our view," he said in a note to investors.
GM Chief Financial Officer Fritz Henderson said the company is on track
to reduce annual costs by $9 billion this year. But he conceded that
more must be done as it heads into national contract negotiations in
June with the United Auto Workers union.
"When we look at the results in North America, it's good to see
improvement. It's not good to be operating at a small loss, clearly,
given where we are in our product cycle," he said. "Frankly, our
business is not generating the kind of returns that we expect, and
clearly we have to continue to make significant improvements."
GM also reported $32 million of special items largely due to
restructuring in its Europe and Asia Pacific divisions. Its results a
year ago were also inflated by a one-time after-tax gain of $395 million
due to the sale of its equity ownership of Suzuki Motors.
Excluding special items, GM's net income was $94 million, or 17 cents
per share, compared with net income of $350 million, or 62 cents per
share in the first quarter of 2006. Those results fell short of Wall
Fifteen analysts polled by Thomson Financial predicted earnings of 87
cents per share, excluding special items.
Henderson attributed the difference primarily to a $115 million loss
from its stake in GMAC. The financial company on Wednesday posted a
first-quarter loss of $305 million, primarily due to a $910 million loss
from its troubled residential loan business.
GM's revenue fell to $43.9 billion for the quarter, down 16 percent from
$52.4 billion in the same period a year ago. GM said the decline was
almost entirely due to GMAC revenue no longer being included in GM's
Automotive revenue for the quarter was $42.9 billion, down from $43.6
billion a year ago.
But while automotive revenue slipped, the number of cars and trucks GM
sold globally rose 3 percent to 2.26 million in the quarter.
Henderson said the average transaction price per vehicle rose by about
$1,000 year over year, but GM also had production cuts of 192,000 units
in North America for the first quarter as it tried to reduce low-profit
fleet sales and incentives.
"Clearly being down 192,000 units is a big headwind," Henderson said.