Combined Profit of 3 GM Units Declines 3% in 1988
General Motors Corp. said Monday that combined net income from its three major subsidiaries fell 3% in 1988, mainly because of a drop in earnings by its financing arm.
But the parent company is expected to post record earnings for the year when it releases results today.
Securities analysts said they expect GM to report a net profit in a range of $4.6 billion to $4.9 billion. GM Chairman Roger B. Smith has said the auto maker will break its old net earnings record of $4.5 billion, set in 1984.
Combined earnings by General Motors Acceptance Corp., Electronic Data Systems Corp. and GM Hughes Electronics Corp. totaled $2.37 billion for 1988. The three units earned $2.44 billion in 1987.
For the fourth quarter, combined earnings by the three rose 9.4% to $530.3 million from $484.7 million in 1987. Shares of EDS and Hughes are traded separately from GM’s common shares.
Credit Losses a Factor
Analyst Joseph Phillippi of Shearson Lehman Hutton said earnings by the subsidiaries are likely to make up about half of what the parent company earned in 1988. Since the mid-1980s, the subsidiaries have accounted for one-third to two-thirds of GM’s net earnings.
“The non-automotive portion, should, over time, represent an appreciable cushion to the company in the event of a softening in automotive volume,” he said.
Of the three, GMAC posted the only year-to-year drop, with earnings declining to $1.18 billion from a record $1.45 billion in 1987. GMAC’s net that year was boosted by an aggressive 2.9% financing program instituted to improve car and truck sales. The program was not repeated in 1988.
Phillippi said GMAC’s net also was affected by rising interest rates and credit losses resulting from loans to less reliable customers.
Douglas Laughlin of Bear, Stearns & Co., said GM’s North American automotive performance likely improved in 1988 to take up the slack from the lower GMAC net.
In the quarter alone, GMAC earned $257.4 million, up from $235 million a year ago.
Foreign Currency Cited
The Hughes unit, which includes Hughes Aircraft and Delco Electronics, posted earnings of $802.1 million for the year, up from $670 million for 1987. Hughes’ earnings in the quarter were $169.5 million, up from $145.5 million in the period in 1987.
The EDS unit had earnings of $384.1 million for 1988, compared to $323.1 million in 1987. EDS’ fourth-quarter results were $103.4 million, down from $104.2 million in 1987.
