GM reports 1Q earnings plunge 90 percent

Citing continuing restructuring costs and big losses from its mortgage lending business, General Motors Corp. reported yesterday a 90 percent plunge in first-quarter earnings.

The company lost its long-standing place as the world's largest automaker during the quarter, as Japan's Toyota Motor Corp. edged past GM in global sales for the first time.


The rough quarter was marked by continued but narrowing losses from GM's crucial North American automotive operations, as demand and production declined for its cars and trucks.

GM's first-quarter net profit of $62 million, or 11 cents a share, was down from $602 million, or $1.06 a share, a year earlier. Many analysts had expected the company to do much better.


Exclusive of one-time items, GM said it would have earned 17 cents a share, or $94 million, down drastically from a Thompson Financial poll of analysts who expected earnings of 87 cents a share. The 2006 first-quarter profit included a $395 million gain from GM's sale of much of its stake in Japan's Suzuki Motor Corp.

GM's stock tumbled $1.75, or 5.4 percent, yesterday to close at $30.69 on the New York Stock Exchange.

"It's only going to get tougher" for GM and other U.S. automakers in the future, Bank of America Securities analyst Ron Tadross cautioned investors in an early-morning e-mail.

Tadross said he believed GM would be forced to lower prices later this year, cutting into profits as its introduction of new and redesigned models slows down.

But GM Chief Executive Officer G. Richard Wagoner Jr. said in an interview on CNBC yesterday that he believes the automaker's first-quarter results show the company running "at a break-even level" after losing $2 billion last year and $10.4 billion in 2005.

Chief Financial Officer Fritz Henderson said he didn't believe analysts were taking into account the full effect of the nation's mortgage-industry meltdown on GM.

Although the automaker sold control of its financial arm last year to a private investment group to raise cash for its restructuring, GM said it lost $115 million in the first quarter on its remaining 49 percent stake in GMAC Financial Services.

On Wednesday, GMAC reported a $305 million loss for the first quarter, versus a gain of $495 million a year ago, and said the loss came from its mortgage lending operation.


GM's first-quarter revenue of $43.9 billion was down 16 percent from $52.4 billion a year ago, reflecting the effect of the GMAC sale. Automotive sales of $42.9 billion were off 1.3 percent from $43.5 billion in the first quarter of 2006.

In North America, GM is cutting production, reducing its share of employee health care costs and slashing 35,000 hourly jobs from its payroll through a big buyout and early-retirement program.

The restructuring and cost-cutting helped the company narrow its loss on North American automotive operations to $46 million from $292 million a year earlier. Revenue from those operations was down 7.7 percent to $28.5 billion from $30.9 billion during the same period last year.

Sales in GM's key foreign markets rose 12.6 percent to $16.7 billion, but profits fell 45 percent to $322 million from $591 million in the same period a year earlier.

"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," Wagoner said in a statement.

John O'Dell writes for the Los Angeles Times.