General Motors profit plunges 90 per cent on mortgage drain

May 3, 2007, 18:15 GMT

Washington - General Motors Corporation Thursday reported a 90 per cent drop in first quarter profits, drained down by the slump in its mortgage branch.

Net income dropped to 62 million dollars from 602 million dollars in the same period last year, the Detroit automaker said. Revenues were down 16 per cent to 43.9 billion dollars.

The overall slump in the US mortgage market has seen many borrowers overextended and unable to keep up with payments, resulting in a domino effect throughout the industry. The increasing number of loans to high risk lenders is coming under scrutiny by the government and consumer groups.

GM's home and auto lender, GMAC, posted a 305 million dollar first-quarter loss, and the residential department reported 905 million dollars in losses. GM sold 51 per cent of GMAC lending operations late last year, and the new parent company poured 1 billion dollars into the residential service this year already.

The profit plunge came despite chief executive officer Rick Wagoner's claim recently that his plan to end losses was working, Bloomberg financial news service reported.

'The business is still about a break-even business, so we've got a lot of work to do,' Wagoner was quoted as saying Thursday..

GM has wrung concessions from unions on labour and health care costs and is carrying out massive job layoffs, but those moves have failed to make the North American auto unit produce profits.

Losses were 46 million dollars for the region, better than last year's North American losses of 292 million dollars but still not good enough, according to Bradley Rubin, an analyst with BNP Paribas in New York.

'The restructuring programme did seem to help, but GM should be making money in North America by now,' Rubin was quoted as saying. 'GM's going to have to pay very close attention to this housing market because that's obviously a big drain on their profits.'

Wagoner has however pared the 104 billion dollar losses of 2005 to 2 billion dollars in 2006. Production has been cut by 200,000 in the first quarter to reduce inventories.

Last month, in a long-expected development, Japanese automaker Toyota Motor Corp ousted GM as the world's largest automaker, reporting sales of a record 2.35 million vehicles for the first quarter.

GM's sales figures were 2.26 million units, also a record.