- May 4, 2007
Subprime housing market hurts GM's Q1 profit
The good news is that GM posted a profit of $62 million, which is the company's second consecutive quarterly profit. The bad news is that the $62 million represents a 90% decline in profits from the first quarter of 2006, which were $602 million. There is a silver lining: the drop is due to losses at GMAC Financial Services, and not the automotive business. In fact, automotive operations improved and GM had record vehicle sales worldwide.
GMAC's profit issues stem from the subprime lending market for residential mortgages. GM still owns 49 purchased by a private equity group last year. The recent -- and ongoing -- implosion of that market doesn't bode well for GMAC's numbers for the rest of the year.
As for GM, automotive revenue was down by $700 million, but GM sold 3% more cars worldwide. The average transaction price per vehicle rose as well, by $1,000. However, due to GM's efforts to cut back on small margin fleet sales and reduce incentives, production was cut by 192,000 units in North America. While the company lost $85 million on core operations this quarter, 2006 Q1's adjusted loss was $251 million. Analysts and GM are disappointed by the numbers, especially because new products have just been launched that were expected to fare better in the marketplace. All parties are looking to the upcoming labor negotiations with the UAW to see what GM can achieve toward its goal of cutting annual costs by $9 billion this year.