GM 1Q Profit Down 90 Percent From 2006

General Motors Corp. CEO Rick Wagoner is seen during a news conference in Detroit, June 26, 2006. Wagoner and the company's board are paying attention to dissident stakeholder Kirk Kerkorian because it's a real possibility that he could seize control of the automaking behemoth, analysts say. Kerkorian could replace Wagoner with Renault Chairman Carlos Ghosn, who has a reputation for cost-cutting. (AP Photo/Carlos Osorio)
AP Photo
General Motors Corp. reported Thursday its 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 it had record vehicle sales worldwide and improvements in its automotive operations in the latest quarter.

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.

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.

The company 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 Street expectations.

Fifteen analysts polled by Thomson Financial predicted earnings of 87 cents per share, excluding special items.

GM shares fell 81 cents, or 2.5 percent, to $31.63 in premarket trading.

Chief Financial Officer Fritz Henderson attributed the difference primarily to a $115 million loss from GMAC, its former financial arm. He said analysts didn't try to estimate the GMAC losses, which he said would be much less in the second quarter.

First-quarter revenue was $43.9 billion, 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 consolidated results.

Automotive revenue for the quarter was $42.9 billion, down from $43.6 billion in the first quarter of 2006.

But while automotive revenue slipped, the number of cars and trucks GM sold globally rose 3 percent to 2.26 million in the quarter.

GM shares fell 81 cents, or 2.5 percent, to $31.63 in premarket trading.

Meanwhile, Henderson said Thursday he expects the United Auto Workers union to make a wage and benefit counteroffer soon in ongoing negotiations involving Delphi Corp.

"I haven't seen it. I think it's probably reasonable to expect we're going to see something," Henderson told reporters.

Henderson said negotiations between the unions, Delphi, GM and private equity investors who plan to pump money into the struggling auto parts maker continue almost every day.

He also said he expects that important parts of the complicated negotiations could be resolved in May or June, with the whole agreement coming by the end of the year.

Delphi, GM's former parts operation that was spun off as a separate company in 1999, has been operating under Chapter 11 bankruptcy protection for more than a year.

When a group of private equity investors agreed to pump up to $3.4 billion into Delphi in December, Troy-based Delphi said it was contingent on reaching a wage and benefit agreement with labor unions. Delphi has said it can't compete in a global market because its labor costs are too high.

Messages seeking comment were left Thursday morning with the UAW and Delphi.

Negotiations involving the investors, Delphi, GM and the UAW recently have become strained, with the union rejecting a wage offer that it called insulting and the UAW president threatening a strike if Delphi gets permission from a bankruptcy judge to void its labor contracts.

GM is involved in the talks because it has some financial liability for the company's labor costs.

Delphi has said that one of the investors, Cerberus Capital Management LP, was expected to leave the group, and Henderson said there are a number of other parties interested in helping Delphi to exit bankruptcy protection.

The UAW has been reluctant to grant concessions sought by Cerberus. The union agreed earlier to reduce Delphi's work force through mass buyouts and early retirement offers and to lowering wages for new workers hired to replace some of those who left.

Industry analysts have said a deal needs to be worked out before national contract talks between the Detroit Three automakers and the UAW formally begin this summer, and Henderson said he was optimistic that most of the deal could be completed by then.