General Motors Tops Estimates

It wasn't a stellar quarter for General Motors (GM Quote) by any means, but the automaker still managed to surpass analysts' estimates for revenue and earnings growth in the first quarter, largely due to better-than-expected results in its financing arm, General Motors Acceptance.

Earnings fell 88% from the year-ago period, due (guess what) to the slowing economy, which hurt sales in both North America and in Europe.

For the quarter, the company earned $225 million, far from the $1.8 billion earned for the year-ago period. The company earned 50 cents a share for the quarter, compared with a record $2.80 for the year-ago period. The 16 analysts polled by Thomson Financial/First Call had a consensus estimate of 26 cents a share.

Helping the company's quarter were strong earnings at GM Acceptance, the financing arm of the company, and aggressive discounting of vehicles in North America, which offset sales declines in North America and Europe. Sales at GM's North American unit showed a massive decline, falling 14% to $25.1 billion from more than $29.2 billion from the same period a year ago. Prices fell 1% and sales to dealers were down by more than 300,000 units in an effort to reduce inventories. Meanwhile, the European unit lost $86 million, down from a profit of $221 million for the year-ago period, on sales of $6.3 billion, down from $6.8 billion a year ago.

GM Acceptance reported income of $718 million, up from $632 million, stemming the losses from the other units.

"The numbers were much higher than expected, and the great upside was in the financial services area," said Jonathan Lawrence, automotive analyst at Dain Rauscher. "My guess is you'll see consensus expectations come up. It seems that the automotive operations' losses are not as severe as anticipated."

Profit margins were down sharply from the year-ago period. Net margins for the North American unit were a scant 0.5%, down from 4.4% for the year-ago period. The company maintained its market share in North America, selling about 29% of all cars in North America and 28% of all trucks.

But Chief Financial Officer John Devine sounded reasonably upbeat on the call, likely thanks to recent reports that auto sales are picking up in the U.S. due to lower interest rates and a reasonable amount of consumer confidence.

"The car piece of consumer confidence has looked a bit better over all, and we've been surprised," he said on the call today. "Buying intentions have held up reasonably well."

So maybe what's good for General Motors still is good for America. Devine, on today's conference call, mirrored remarks made recently by a few other executives and some economists saying that the economy is getting back on solid footing after stumbling for a few months. In March, the manufacturing sector saw its first pick-up in production since a slide started in September. That was largely due to strengthening in the automotive sector, as consumers responded to lower interest rates and price discounting.

Automakers cut back production sharply in the first quarter as inventories piled up, but the Big Three U.S. automakers managed to cut back their inventories to a level that they're comfortable with by the beginning of March. Generally, car makers like to have about 60 to 65 days of forward inventory, but inventories had run up to about 100 days of supply in January as consumer demand dropped sharply.

Today Devine said April sales are coming in better than expected and said the second quarter could come out better than originally forecast. He said GM expects the seasonally adjusted annual rate of auto sales to come out to the mid-16 million range, down from the first quarter's 17.5-million rate.

GM's stock price has languished for several months while its rival, Ford (F Quote) has rallied. Since the beginning of the year, Ford's stock has risen while GM has gone nowhere. That may have something to do with last year's developments -- Ford's stock dropped sharply after the company's massive recall of vehicles with faulty tires. Lately GM was trading up $3.23 to $56.86, a 6% gain today.