GM May Say Profit Excluding Costs Fell on GMAC, U.S.

 General Motors Corp., the largest U.S. automaker, may say second-quarter profit from operations fell because of mortgage losses at its finance unit and declining domestic sales of cars and trucks.

Analysts expect GM to report tomorrow that profit excluding costs for a bailout of former parts unit Delphi Corp. declined to $1.11 a share, the average of 13 estimates compiled by Bloomberg. Earnings on that basis were $2.03 a share a year earlier. The Detroit-based automaker had a net loss of $3.4 billion in the 2006 quarter, mainly because of expenses to eliminate jobs.

``I'm a little more bullish than other analysts, but GM still faces the same headwinds they've been dealing with all year,'' said auto analyst David Healy of Burnham Securities Inc. in Sierra Vista, Arizona, who doesn't own the shares. He estimates profit will be $1.55 a share.

Rick Wagoner, GM's 54-year-old chief executive officer, is trying to revive growth in U.S. sales as gasoline near $3 a gallon damps demand for high-profit pickup trucks and sport- utility vehicles. Wagoner has said he wants to increase sales with lower prices and new models with better quality and more appealing designs.

GM also has taken on additional costs for Delphi, while the mortgage unit of its 49 percent-owned GMAC LLC may post losses from loans to buyers with weak credit ratings.

Auto Sales

The automaker doesn't forecast earnings. GM in May raised its estimate for the cost of helping Delphi trim labor expenses under an agreement with the United Auto Workers union to $7 billion, from $6 billion. GM has said it will report second- quarter costs related to Delphi, without giving specifics.

GM spokeswoman Renee Rashid-Merem declined to comment.

GM's vehicle sales in the quarter fell 7 percent in North America and rose 8.2 percent in the Asia-Pacific region, 4.7 percent in Europe and 20 percent in Latin America, Africa and the Middle East. The total of 2.41 million cars and trucks exceeded the 2.37 million in sales by Toyota Motor Corp., which topped GM in the previous quarter for the first time.

``Demand is still shifting away from GM's most profitable vehicles and Japanese capacity continues to grow in the U.S., making it impossible for them to get higher prices,'' said John Casesa, managing partner of consulting firm Casesa Strategic Advisors LLC in New York. ``They are fighting a long-term battle, and they're doing it with a lot of debt.'' GM's bonds and loans total $27.7 billion, according to Bloomberg data.

Mortgage Woes

GM's cash flow probably was positive in the quarter, bolstered by proceeds from a $1.3 billion convertible debt issue, Brian Johnson, a Lehman Brothers analyst in Chicago, wrote in a July 20 report.

GMAC today reported that second-quarter net income fell to $293 million from $787 million a year earlier. Its mortgage unit, Residential Capital LLC, had a loss of $254 million, compared with a profit of $548 million a year earlier, because of loans to buyers with poor credit ratings.

Johnson estimated a $363 million ResCap loss in his forecast 92 cents a share for GM profit excluding one-time costs. Himanshu Patel, a JPMorgan Chase & Co. analyst in New York, projected a ResCap loss of about $300 million in his $1.20-a share estimate.

GM sold 51 percent of GMAC, which includes auto-loan, mortgage and insurance units, to a group led by New York-based Cerberus Capital Management LP last year to raise money for its restructuring and help GMAC get a higher credit rating.

Ford Motor Co., the second-biggest U.S. automaker, on July 26 reported a surprise $750 million profit, on improved results at foreign units and reduced losses in North America.

``We expect a much smaller amount of improvement at GM because GM is a lot further along in restructuring,'' said Shelly Lombard, a fixed-income analyst in New York at Gimme Credit LLC.

Labor Talks

The quarterly results may be less important to investors than whether GM is able to win concessions in UAW contract talks that started July 23, Casesa said. A focus is whether the union will back an independent retiree health-care fund, enabling GM to shed about $50 billion in future costs.

GM shares rose 23 percent in the quarter on speculation the company will gain concessions in the bargaining. The stock also benefited from the UAW agreement at Delphi, which included plant closings and wage cuts in exchange for payouts. That accord was seen as evidence that the union is willing to compromise.

``Investors are barely paying attention to fundamentals because they are so focused on labor issues,'' Casesa said.

Shares of GM gained $1.51, or 4.9 percent, to $32.61 at 4 p.m. in New York Stock Exchange composite trading.

The company's 8.375 percent note due July 2033 rose 3.75 cents to 81.75 cents on the dollar, according to Trace, the NASD's bond-price reporting system. The yield was 10.4 percent.

Credit-default swaps based on $10 million of GM's bonds gained $35,600 to $766,400, according to CMA Datavision in New York. An increase in the five-year contracts indicates a decline in the perception of credit quality.

Gimme Credit's Lombard said investors are worried about a recent tightening of access to high-yield debt, because GM may need to sell bonds to pay for a union retiree health-care fund.