EARNINGS : GM Profit Slumps 3.9% in Quarter; Ford’s Falls 15.6%

General Motors Corp. said its second-quarter net income dropped 3.9%, and Ford Motor Co. posted a 15.6% quarterly profit decline Thursday, evidence of a softening U.S. vehicle market and the costs of buyer incentives.

Both companies said the results reflected a weakening car and truck market and the cost of incentives they used in efforts to boost sales, a trend industry analysts had expected.

General Motors Corp.

GM earned $1.45 billion during the three months ended June 30, compared to $1.51 billion during the same time last year.

GM revenue, which includes sales by the GM Hughes Electronics Corp., Electronic Data Systems Corp. and General Motors Acceptance Corp. subsidiaries that reported earnings Wednesday, rose 1.3% during the quarter to $33.6 billion from $33.18 billion last year.

Ford Motor Co.

Ford, the nation’s second-largest auto maker, reported that it made $1.4 billion during the quarter this year, compared to $1.66 billion a year ago.

Ford revenue rose to $25.9 billion from $24.96 billion.

Earnings from Ford’s financial services group fell 19.9% to $173 million, due to lower net interest margins, the company said.

Chrysler Corp., the nation’s third-largest auto maker, is to report its second-quarter earnings on Monday.

Ford’s U.S. profits softened due to expensive incentive programs and reduced profit margins, said David M. McCammon, Ford treasurer and vice president for finance.

Incentives pose a double threat for auto makers’ profits. When sales slump, profits generally do too. To boost sales and profits, companies gamble a bit by offering incentives that are costly in the short-term but designed to produce increased consumer interest and more buyers in the long-term.

But when interest wanes, as recent sales declines apparently indicate, returns on incentive costs may come later, if at all, and that cuts into short-term profits.

GM’s domestic car and truck sales through the first half of this year were 7.7% behind last year’s pace and Ford’s were down by 3.6%.

McCammon said incentives during the second quarter cost Ford between $600 and $700 a vehicle, up sharply from the $200 to $300 average cost during the first quarter of this year and the second quarter of last year.

GM spokesman Terry Sullivan said per-car incentive costs for the quarter were unavailable. However, GM spent about $715 per car last year on incentives and said costs for the programs would be higher this year, he said.

The nation’s two largest auto makers also said their overseas operations continued to do well, making up for profit shortfalls in their North American operations.

“GM’s North American automotive operations continue to improve their operating efficiencies, while overseas earnings in 1989 are exceeding the record levels achieved in 1988,” said a joint statement by GM Chairman Roger B. Smith and President Robert C. Stempel.

“They both had good first halves of the year in Europe,” said analyst Joshua Harari, of Standard & Poors Corp. in New York. “This plays an important part in supporting their earnings--it has for the last two years.”

For the first six months of the year, GM earned $3.01 billion, up 15.7% from $2.6 billion during the first six months of last year. Revenue during the January-June period this year rose to $59.63 billion from $56.34 billion.

Ford’s earnings for the first half of 1989 fell 7.6% to $3.04 billion from $3.29 billion a year earlier. Revenue rose to $51.76 billion from $48.15 billion.

GM and Ford said they were continuing cost-cutting programs to improve their profitability in the face of a softer economy and forecasts of lower vehicle sales next year.