The troubled U.S. housing market added to General Motors Corp.’s woes in the first quarter of 2007 as the automaker’s profits slipped 90% amidst its restructuring push.
Detroit-based GM said Thursday that it made $62 million in the quarter, compared to $602 million a year earlier. In addition to weakness in its GMAC Financial Services residential mortgage business, the company said that its North American auto operations remain in the red despite recent efforts to cut costs.
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GM in 2006 used buyouts, plant closures, benefit changes and production cuts to extract $9 billion in annual costs from its North American operations. The company has said it hopes a combination of lower costs and redesigned vehicle models will halt its declining market share in the U.S. and restore its domestic automotive business to profitability.
Total automotive net income improved by $264 million year over year, but North American revenue declined by 8% and the company said it lost $85 million in the region. Officials said the results were encouraging, noting that the company lost $251 million in North America in the prior-year period.
“The first quarter of 2007 marked another quarter of continued progress in GM’s global automotive operations,” chief executive Rick Wagoner said. “We continue to see progress on the automotive bottom line as we implement the strategies we laid out two years ago.”
But analysts were less sanguine about the results. Prudential Equity Group LLC’s Mark B. Warnsman wrote Thursday that the weak North American results were of particular note because they occurred despite GM launching its new line of pickups.
These vehicles accounted for 24% of U.S. sales through April. The results could signal that GM may not be able to achieve the profit it had hoped for over the lifespan of the new vehicles, the analyst said.
“We anticipate that margins will continue to improve through the year as off-standard launch costs are reduced,” Warnsman wrote. “However, it is unclear to us at this time whether GM will improve its margins enough at this relatively strong point of its product cycle to deliver an acceptable return over the life cycle of its new products.”
—Lou Whiteman
