GM’s 1st-Quarter Net Income Dips 5%

General Motors Corp. on Friday posted a 5% decline in first-quarter earnings, reflecting the impact of a price war among U.S. auto makers and pressures on overseas operations.

The results were in line with analysts’ expectations and come as the nation’s No. 1 auto maker has aggressively resorted to incentives to reverse a slide in market share.

The company’s net profit was $1.6 billion in the quarter, or $2.27 per share, compared with $1.7 billion, or $2.21, a year ago. The earnings per share rose because a stock buyback program reduced the shares outstanding.

Sales were up 2.7% to $41.6 billion.

GM was the last of the Big Three to report first-quarter earnings. Ford on Thursday posted earnings of $1.7 billion, up 15%, and Chrysler last week reported profit of $1 billion, up 2%.

This strong first-quarter performance--collectively the Big Three earned $4.3 billion--demonstrates that Detroit is surmounting increased competition and lower prices by cutting costs and increasing sales of high-profit light trucks.

Despite the profit decline, GM officials expressed satisfaction with the results. They noted that North American auto operations earned a record $826 million, up 8% from a year ago, due to cost-cutting and stronger truck sales.

U.S. earnings, however, were dampened by incentives that averaged $1,305 a vehicle in the quarter, up from $860 a year ago, and slightly higher than Chrysler and Ford. GM spent more than $1.4 billion to entice Americans to buy its vehicles last quarter.

The outlook is for even higher rebates in the second quarter, before tapering off with the beginning of the new-model year in September, said Michael Losh, GM’s chief financial officer.

GM increased incentives sharply in March after its market share dipped below 30% in February. It rebounded last month, ending at 30.2% for the quarter, the same as a year ago.

“They have no choice but to increase incentives,” said Nick Lobaccaro, an analyst with Merrill Lynch. “They either go with value pricing to keep market share or close plants.”

Analysts said that intense competition and rising incentives are going to make it difficult for GM to improve earnings this year, a fact reflected in its recent anemic stock price performance. GM shares fell $1.19 to close at $68.94 on the New York Stock Exchange.

The auto maker said that it hopes to overcome higher incentives with additional cost reductions. The company said it reduced operating costs by $1.2 billion in the first quarter, mostly through reduced materials expenditures and manufacturing efficiencies. It hopes to reduce costs by $4 billion in 1998.

“We must continue to cut costs in order to improve our competitive position because price and incentive pressures are unrelenting,” said GM Chairman John F. Smith.

GM’s international operations and parts businesses both saw profits drop. The company earned $99 million in Europe, up 5%. But earnings dropped 64%, to $61 million, in Asia and Latin America, the result of financial turmoil roiling those regions.

The company’s Delphi parts unit reported profit of $263 million, down 16%. The lower earnings stemmed from pricing pressures and reduced demand in Asia and Latin America.

The 1998 quarterly results do not include Hughes Electronics Corp.’s defense business, which was sold to Raytheon Co. in December.