GENERAL MOTORS 2nd-quarter profits decline 30 percent

Nearly all of GM's profits came from its financing arm.
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DETROIT -- Second-quarter earnings tumbled 30 percent at General Motors Corp. as the world's largest automaker made almost nothing selling cars and trucks, either here or in Europe.
Virtually all its profits came from loaning money for home and commercial mortgages.
Despite the mixed message in GM's numbers, chief financial officer John Devine said Thursday that the automaker is optimistic about the rest of the year and should make more in the second half of 2003 than it expected a few months ago.
GM's North American auto operations -- the parts of GM that only make and sell cars and trucks -- saw profits tumble dramatically from $1.27 billion a year ago to just $83 million this April through June. That's a drop of nearly 94 percent.
GM blamed the stumble on rising incentives -- something GM itself has largely driven -- and much lower production than a year ago. A tornado and the resulting loss of production at GM's Oklahoma City assembly plant, which makes the Chevrolet Trailblazer and GMC Envoy sport-utility vehicles, further cut GM earnings by about 30 cents per share, or $168 million.
Mortgage refinancing
GM was aided by a mortgage refinancing boom. GMAC, the huge GM credit arm, reported record quarterly profits of $834 million, up from $431 million a year ago.
Overall, GM made $901 million, or $1.58 per share, for the quarter, compared with $1.3 billion, or $2.43 per share, a year ago. Analysts had been projecting GM would make between $1.19 and $1.24 per share.
Of the $1.58 GM made per share, GMAC accounted for $1.49, or 94 percent of it. GM's $48.31 billion in sales were flat compared with $48.33 billion in sales a year ago.
"It was a reasonably good performance for the quarter," said Devine. "The big story is residential and commercial mortgages, which continue to drive GMAC."
He added "these are not acceptable results" for GM's North American operations, noting GM had to cut production about 11 percent, or 174,000 vehicles, in the second quarter due to a larger-than-expected inventory of unsold cars and trucks at the end of the first quarter.
High dependency
The automakers' continued reliance on financing operations -- some would say over-reliance -- was noted by many auto analysts. Crosstown rival Ford, which reported earnings Wednesday, was also very dependent on its financial arm, Ford Credit.
"GM and Ford have largely become banks, but with a twist," wrote auto analyst Goldman Sachs. "Rather than enticing depositors with free toasters, they entice borrowers with heavily discounted vehicles.
"Automotive earnings at both companies are weak, particularly given the seasonally strong second quarter. Financial services earnings are far above normal, and unsustainable in our view."
GM's stock dropped 18 cents to close at $35.74 Thursday.