The decline in reported GM earnings is more than accounted for by losses in the residential mortgage business of GMAC Financial Services (GMAC), driven by continued weakness in the U.S. nonprime mortgage sector (following the 51 percent equity sale of GMAC in late 2006, GM is reporting its 49 percent ownership interest using the equity accounting method). In addition, last year's results included a one-time after tax gain of $395 million due to the sale of a portion of GM's equity ownership position in Suzuki Motors.
The reported results for the first quarter of 2007 include unfavorable special items totaling $32 million after tax, or $0.06 per diluted share, related largely to restructuring actions in Europe and Asia Pacific, offset in part by a favorable item related to workforce attrition costs for previously divested components plants. Details on the special items are included in the "Highlights" section of this news release.
Excluding special items, GM posted adjusted net income of $94 million, or $0.17 per diluted share in the first quarter of 2007, compared to adjusted net income of $350 million, or $0.62 per diluted share in the first quarter of 2006. Total revenue for the first quarter of 2007 was $43.9 billion, down from $52.4 billion, almost entirely due to GMAC revenue no longer being included in GM's consolidated results. Automotive revenue for the first quarter of 2007 was $42.9 billion, down slightly from $43.6 billion in the first quarter of 2006.
GM Automotive Operations
Net income from GM's global automotive operations totaled $304 million on an adjusted basis, in the first quarter of 2007 (reported net income of $272 million), compared to $40 million in the year-ago quarter (reported net income of $295 million).
GM sold an all-time first quarter record 2.26 million cars and trucks in the first quarter of 2007, up 3 percent, or 67,000 units, over the first quarter of 2006. Sales in the GM Asia Pacific (GMAP) region grew more than 20 percent; GM Latin America, Africa and Middle East (GMLAAM) grew 17 percent, and GM Europe (GME) grew 6 percent. GM's all-time sales record was achieved despite challenging market conditions in the U.S. largely due to volatile fuel prices and contraction in the housing market.
GM North America (GMNA) posted an adjusted loss of $85 million in the first quarter of 2007 (reported net loss of $46 million), an improvement of $166 million compared to an adjusted net loss of $251 million in the year-ago quarter (reported net loss of $292 million).
The GMNA improvement in the first quarter was mostly attributable to large structural cost savings in health care and manufacturing related expenses. GMNA also enjoyed positive product mix related to the strong acceptance of new launch products as well as GM's continued strategy to reduce its daily-rental fleet business.
GMNA was able to improve its year-over-year net income, despite a significant production reduction of 192,000 units. The volume decline reflected the disciplined implementation of the company's sales and marketing strategy, including reducing dealer inventories in the U.S. and Canada by 111,000 units as compared to year-ago levels, and reducing deliveries to daily rental companies in the U.S. and Canada by 69,000 units. Retail sales were up slightly in the U.S. for the quarter, despite challenging market conditions.
"This quarter's results again demonstrate progress in the implementation of our North America turnaround plan. They reflect major cost reductions once again, which more than offset lower volume -- a function of the disciplined implementation of our product-based sales and marketing strategy," Wagoner said. "And, our newest products such as the GMC Acadia and Chevrolet Silverado have been well accepted by consumers, which gives us confidence that the most important element of our North America turnaround -- product excellence -- is well on track."
GME adjusted net earnings for the first quarter of 2007 amounted to $42 million (reported net income of $5 million), compared with $131 million in the first quarter of 2006 (reported net income of $59 million). The decline in net income is attributable to unfavorable product mix, material cost and lower gains on commodity hedging, which was partially offset by improved structural cost and favorable pricing.
GME set a first quarter sales record, with almost 554,000 deliveries. This marks the highest quarterly retail sales ever for the region, and the best market share performance in 10 years at 9.8 percent. And in the growing market of Russia, GM sales increased by 128 percent, outpacing the 26 percent growth in that market.
"GM Europe's record sales for the quarter reflect strong acceptance of our newest Opel/Vauxhall cars, continued progress with our multi-brand strategy -- including an all-time Chevrolet Europe sales record -- and strength in the key growth markets of Europe, especially Russia," Wagoner said.
GMAP posted adjusted net income of $150 million in the first quarter of 2007 (reported net income of $116 million), up from $97 million a year ago (reported net income of $492 million). Despite the loss of income from the equity sale of Suzuki, the improvement reflects an approximate 20 percent sales volume increase led by China, India and South Korea, record exports of GM-DAT products and improved performance at Holden.
GMAP revenue was up almost 35 percent, at $4.6 billion, compared with the year-ago quarter. GMAP also set all-time records in sales and market share growth, outpacing overall industry growth. Building on the strength of the well-established Buick brand, new products such as the Cadillac SLS and Chevrolet Epica are also being well received in key markets like China.
"Our strongest growth is in the Asia Pacific market, which is critically important as this will be the fastest growing region in the world over the next decade," Wagoner said. "We continue to build on our already strong footprint in China, take advantage of GM-DAT's great capabilities, and move aggressively in other important markets, like India."
Net income for GMLAAM tripled to set a new first quarter earnings record of $201 million in the first quarter of 2007, up from $67 million in the year ago period (reported net income of $40 million). The improvement in profitability was driven by very strong volume, as well as better pricing and product mix.
The sales growth in the LAAM region is consistent across all major markets, with significant gains in key Latin American countries as well as strong performance in the Middle East and South Africa. Revenue was up 13 percent over the same quarter last year, setting a new first quarter record for GMLAAM.
"GMLAAM had an extremely strong quarter, setting records in both sales and profitability, on the strength of our traditionally strong representation in this growing region. The outlook is bright for continued strong results at GMLAAM for the rest of the year, and beyond," Wagoner said.@@page@@
GMAC posted a net loss of $305 million in the first quarter of 2007, compared to net income of $495 million in the year-ago period. For the first quarter, GM recognized a net loss of $115 million associated with its 49 percent ownership of GMAC, including the accrual of dividends on GMAC preferred membership interests and certain tax benefits realized.
GMAC results were significantly impacted by a net loss of $910 million at Residential Capital, LLC (ResCap) due to continued pressures in the U.S. mortgage market. GMAC's first quarter net income generated by auto finance, insurance and other operations was $605 million, more than double the earnings generated by these same operations in the first quarter of 2006.
GMAC indicated its long-term prospects continue to look favorable based on strong business fundamentals across its automotive finance and insurance operations. In addition, GMAC indicated it anticipates a considerable improvement in ResCap's earnings performance in the second quarter this year, with losses in the U.S. residential mortgage sector expected to be at a much reduced level.
Cash and Liquidity
GM generated adjusted automotive operating cash flow of $300 million for the first quarter of 2007, an improvement of $1.5 billion year-on-year, with all four regions reporting improvement.
Cash, marketable securities, and readily-available assets of the Voluntary Employees' Beneficiary Association (VEBA) trust totaled $24.7 billion at March 31, 2007, up from $21.6 billion on March 31, 2006, but down from the year-end 2006 total of $26.4 billion.
Results for the first quarter of 2007 are preliminary and may be revised prior to the filing of GM's first quarter report on Form 10-Q in early May.
General Motors Corp. (NYSE:GM) , the world's largest automaker, has been the annual global industry sales leader for 76 years. Founded in 1908, GM today employs about 280,000 people around the world. With global headquarters in Detroit, GM manufactures its cars and trucks in 33 countries. In 2006, nearly 9.1 million GM cars and trucks were sold globally under the following brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, HUMMER, Opel, Pontiac, Saab, Saturn and Vauxhall. GM's OnStar subsidiary is the industry leader in vehicle safety, security and information services.