GM profit plunges 90 pct after housing finance loss

Detroit, May 4: General Motors Corp. on Thursday reported a 90 percent drop in first-quarter earnings, missing Wall Street estimates by a wide margin, as mortgage-related losses at its GMAC affiliate swamped gains in its main business.

GM Chief Financial Officer Fritz Henderson said weaker GMAC results were the major reason earnings missed even the lowest of Wall Street expectations.

But analysts raised concerns about both GM's remaining exposure to the riskiest segment of the U.S. mortgage market and the pace of the automaker's efforts to restore its North American operations to profitability.

Shares of GM dropped more than 3 percent, while its bonds weakened and credit default swaps widened.

GM, which Toyota Motor Corp. displaced as the world's largest automaker in the first quarter, said profit fell to $62 million, or 11 cents a share, from $602 million, or $1.06 per share, a year earlier.

Excluding one-time items, GM earned 17 cents per share. Analysts on average had expected 87 cents, with the lowest estimate at 47 cents.

GM, which sold a majority stake in GMAC last year, realized a $115 million loss from the 49-percent share it still holds.

On Wednesday, GMAC posted a first-quarter loss of $305 million as pressure in the U.S. mortgage market forced it to take charges at its housing finance unit.

''I think investors understood that issues in nonprime would not be limited to the fourth quarter, that you would see some effect in 2007, but frankly I don't think that was fully factored in,'' Henderson told reporters.

GMAC has said it expected improved results at its housing finance unit, ResCap, this quarter. Henderson declined to elaborate on that forecast.

GM's revenue fell to $43.9 billion from $52.4 billion a year earlier. North American automotive net losses narrowed to $46 million from $292 million on cost savings.

Analysts Raise Concerns

GM, which lost more than $10 billion in 2005 and about $2 billion in 2006, is in the middle of a restructuring that includes slashing more than 34,000 jobs and closing 12 plants.

Key Banc Capital Markets analyst Brett Hoselton downgraded GM from a ''buy'' to ''hold,'' saying that it appeared that ResCap would remain a drag on earnings.

Argus Research analyst Kevin Tynan said the financial impact of GM's cost-cutting efforts appeared to be waning.

''This is an indication that while revenue is strong, there is lot of work to do to turn the corner to become profitable in North America,'' he said.

Lehman Brothers analyst Brian Johnson said the earnings called into question whether a new pickup truck line, including the Chevrolet Silverado, would bolster the GM's results.

''Without substantial labor concessions, meaningful improvements in profitability are unlikely in our view,'' Johnson said in a note for clients.

GM, like Detroit-based rivals Ford Motor Co. and Chrysler Group, is expected to seek cost savings in a round of talks with the United Auto Workers this summer aimed at replacing a 4-year contract expiring in September.

Separately, GM's Henderson said negotiations with bankrupt former parts subsidiary Delphi Corp. and union representatives were continuing ''virtually every day.'' GM's goal is to conclude a deal with the United Auto Workers union and Delphi before starting its own contract talks, he said.

A labor disruption at Delphi, GM's largest parts supplier, has been viewed as a lingering risk for GM since it has the potential to shut down the automaker's assembly lines.

''I think there are important parts of this matter that can be resolved in May and June,'' Henderson said.

Henderson said GM was in talks with Malaysian carmaker Proton Holdings Bhd. for a stake in the automaker.

GM is also in talks with potential investors in its Allison Transmission subsidiary, he said.

GM's 8.375-percent notes maturing in 2033 fell less than 1 cent on the dollar to about 91 cents, according to MarketAxess.

The cost to protect the company's debt with credit default swaps widened, meaning it now costs $426,000 annually to insure $10 million of GM bonds against default risk for five years.

GM shares, which have risen nearly 60 percent since the start of 2006 as investors gained confidence in GM's turnaround, fell $1.71, or 5.3 percent, to $30.73 at mid-afternoon on the New York Stock Exchange.

Reuters