DETROIT (AP) — The troubled mortgage market spilled onto General Motors Corp.’s balance sheet yesterday as first-quarter profits dropped 90 percent from a year ago, mainly because of losses at GM’s former financial arm.
But the fact that the nation’s largest automaker still lost money on its North American operations seemed to trouble industry analysts more than losses at GMAC Financial Services, because GM is more than a year into a massive restructuring plan that includes cost cuts and multiple new products.
The net profit of $62 million, or 11 cents a share for the January-March period, was GM’s second consecutive quarterly profit, although it was down from $602 million, or $1.06 per share, a year ago.
GM said in yesterday’s report that it booked record vehicle sales of 2.26 million worldwide and showed improvements in its automotive operations in the latest quarter.
Its earnings, excluding one-time items, fell short of Wall Street expectations and its shares fell more than 5 percent. GM stock lost $1.75 to close at $30.69 yesterday.
The company attributed the year-over-year decline to losses in GMAC’s residential mortgage business. GM sold a 51 percent stake in GMAC to private equity investors last year, but still owns 49 percent of the business.
Chief Financial Officer Fritz Henderson attributed the decline primarily to a $115 million loss from the company’s stake in GMAC. The financial company on Wednesday posted a first-quarter loss of $305 million, mainly because of a $910 million loss at its troubled residential loan business.
While GM’s North American performance improved, the company still lost an adjusted $85 million on its core operations. A year ago, GM reported an adjusted loss of $251 million in North America.
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 debut 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.
Mr. Henderson said the company is on track to reduce annual costs by $9 billion this year. By the end of last year, it had achieved an annual cost reduction of $6.8 billion largely through the departure of thousands of hourly workers from buyouts or early retirement offers.
But Mr. Henderson 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.”
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