Updated from 8:27 a.m. EDT

Red ink is coursing from

General Motors

(GM) - Get Report

, where heavy discounting propped up sales in the second quarter but contributed to a $1.2 billion loss in the automaker's North American operations.

On a conference call with analysts, GM's Chief Financial Officer John Devine refused to provide earnings guidance for the second half of the year, citing uncertainties about the industry.

"This does create volatility in expectations, which is unfortunate, but we're going to have to live with it," Devine said.

GM lost $286 million, or 51 cents a share, in the quarter, compared with earnings of $1.4 billion, or $2.42 a share, last year. Adjusted for items, the company lost $318 million, or 56 cents a share, in the 2005 quarter. Sales slipped 1.6% to $48.5 billion, even though June sales increased 41% due to the success of its "employee discount for all" promotion.

The results missed Wall Street estimates by a wide margin. According to Thomson First Call, analysts expected GM to earn 3 cents a share in the quarter.

Analysts expectations for GM's 2005 earnings performance vary from a loss of $3.44 a share to a gain of 77 cents a share. On average, analysts polled by Thomson First Call are expecting a loss of 76 cents a share.

Shares of GM were recently down 59 cents, or 1.6%, to $36.24.

In the second quarter, GM's global automotive operations lost $948 million in the second quarter compared with earnings of $579 million a year ago. The company reported higher market share -- 15.2% compared with 14.7% a year earlier -- and said dealer inventories in North America were reduced by 349,000 units from a year ago.

Devine said reductions in inventory levels during the quarter were a major drag on earnings and cash flow, but they should set the company up to improve its performance in the future. He also said the company needed to achieve a higher level of productivity in North America, which means more U.S. plants would likely be closed.

Despite competitive and excess supply issues, GM stressed the role of health care costs as the major factor working against its performance. Devine refused to comment on how negotiations with the United Auto Workers union were progressing, but he did say that he expected no help from politicians in Washington on the matter.

"The biggest impact we can have on our profitability is if we can get some help on our health care costs," Devine said.

The company's saving grace has long been its finance unit, which lends money for cars and homes, among other things. GMAC earned $816 million in the second quarter, down from $846 million a year ago, as lower earnings from financing operations were partially offset by increased earnings from mortgage and insurance operations.

GM said it withdrew $1 billion in the second quarter from a fund set up to provide health care for retired workers. The company said an additional $1 billion was withdrawn from the fund on July 1. The company had $20.2 billion in cash on its balance sheet as of June 30, up from $19.8 billion at the end of March.

Despite its healthy cash position, its burgeoning liabilities prompted Standard & Poor's to cut GM's credit rating to "junk" in May.

"Where we are not yet making the progress we need is on the cost side of the business," CEO Rick Wagoner said in a statement. "With the intense competitive conditions and pricing pressures continuing in the North American market, it's clear that we need to move faster in implementing the key cost reduction strategies that I outlined at our recent annual meeting -- re-energizing our global sourcing efforts, improving U.S. capacity utilization and achieving fully competitive productivity levels.

"Finally, our health care cost situation remains an extreme burden on our ability to compete; we continue to work intensely on solutions to this crisis with our labor unions," Wagoner said.