Turnaround Under Way, G.M. Is Still Bleeding Cash

DETROIT — Three years into its turnaround plan, General Motors has greatly improved its primary business — selling cars — yet money keeps flowing out of the company by the billions.

G.M.’s automotive profit rose to $392 million in the first quarter, from $231 million a year ago, as it overcame sharply lower demand for big, profitable vehicles in North America with higher sales in every other global sales region.

But it lost $3.25 billion, or $5.74 a share, as it struggled with a bankrupt former parts division, a strike at a major supplier and home loans made by its finance arm that have gone bad.

The numbers looked more like the ones that prompted G.M. to start its overhaul than those of a company on the rebound.

The loss included a $1.45 billion write-down in the value of G.M.’s interest in its finance arm, GMAC, which was a consistent source of profits for G.M. until the housing market turned sour. It also included a $731 million noncash charge related to support of a reorganization effort at the parts supplier Delphi Corporation, a spinoff that may sap money from G.M.’s coffers even longer than expected. The lead investor in Delphi’s bankruptcy exit financing package backed out a month ago.

G.M. blamed a strike at a Detroit-based supplier, American Axle & Manufacturing, for $800 million of its first-quarter loss. The strike began more than two months ago and shows no signs of ending soon.

Shortages of the parts that American Axle makes forced G.M. to close many of its factories that build full-size pickup trucks and large sport utility vehicles for much of March and April, costing it 100,000 units of production so far.

Excluding one-time charges, G.M. said it lost $350 million, or 62 cents a share, compared with $10 million, or 1 cent, a year ago.

Still, the loss including one-time charges was almost $1 a share less than analysts had expected, and investors bid up shares of G.M. more than 9 percent Wednesday, to $23.20 on the New York Stock Exchange.

Analysts fear what lies ahead for G.M., however, after it lowered its 2008 sales forecast for the industry Wednesday and this week announced a drastic cut in production of the light trucks and S.U.V.’s that have in the past been strong sellers and its most lucrative vehicles.

“We think that we’ve made great progress since 2005,” when G.M. lost $10.6 billion and began its reorganization, Ray Young, G.M.’s chief financial officer, said. “Our global automotive results were very encouraging. But I admit there’s more work to do.”

Of the one-time items that have been dragging down G.M.’s potential to earn a profit, Mr. Young said, “We hope to get these issues behind us as soon as possible.” He acknowledged that the solutions would not be immediate.

G.M.’s overall first-quarter loss compared with a loss of $42 million, or 7 cents a share, in the same period of 2007. Revenue fell to $42.7 billion, from $43.4 billion a year ago, as global sales declined less than 1 percent.

In North America, G.M.’s adjusted loss was $611 million, more than double the $269 million it lost a year ago. Company officials have become more pessimistic about how all automakers will fare in the United States this year. Mr. Young said that he expected the second quarter to be “tough” and that the vehicle market would recover less in the third and fourth quarters than originally predicted.

“Losing $600 million in North America is not an acceptable result at all, but to have achieved it with that kind of production disruption, there are some positive signs there,” G.M.’s president, Frederick A. Henderson, said. “We’re not happy with the results but there are some things we can build on.”

On Monday, G.M. said it planned to cut production of full-size pickups by 88,000 units and of large S.U.V.’s by 50,000 units this calendar year. The move will result in layoffs for about 3,550 workers at assembly plants in Michigan, Wisconsin and Ontario.

Given G.M.’s performance in the first quarter and its continued shift away from full-size trucks in North America, “we remain comfortable with our expectation of a large operating loss in North America in 2008,” Brian A. Johnson, an analyst with Lehman Brothers, wrote in a note to clients.

Even given its troubles in the United States, G.M.’s continuing operations would have made money if not for its share of an $859 million loss at the home mortgage division of GMAC, which lost $589 million over all. G.M. owns 49 percent of GMAC, having sold a majority stake last year to Cerberus Capital Management, the private equity firm that also owns most of the automaker Chrysler.

While G.M.’s losses grew in the first quarter, its crosstown rival, the Ford Motor Company, reported a surprising $100 million profit last week that has energized the company and investors. But many analysts have said that Ford’s ability to beat expectations, like G.M.’s, does not necessarily signal more good news in the near-term.

But Mr. Young said G.M. believed it was on the correct path, even though the United States market had deteriorated more than anyone developing the turnaround plan expected in the face of high gasoline prices and ebbing consumer confidence.

“We have to be agile and flexible to make adjustments in the plan,” he said, but “we don’t see a need for a new plan. We think that the current plan makes a lot of sense. Our priority is to turn around North America and make it profitable.”

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