March 14 (Bloomberg) -- General Motors Corp. reported net income of $950 million, its second quarterly profit in two years, as increased auto sales and reduced labor costs offset a loss at a mortgage unit.

Net income in the fourth quarter was $1.68 a share, compared with a loss of $6.6 billion, or $11.63, a year earlier, the Detroit automaker said in announcing the twice-delayed results today. Operating profit missed analysts' estimates by 90 cents a share as loan defaults led to a loss at ResCap, a unit of the GMAC financing division.

The profit was the biggest in almost three years as Chief Executive Officer Rick Wagoner benefited from closing plants, eliminating jobs and trimming health-care spending to overcome more than $12 billion in losses in 2005 and 2006. GM has been losing U.S. market share as buyers shift to sport-utility vehicle and car models that favor Toyota Motor Corp. and other rivals.

``There was a lot of progress in North America, which is their main operation,'' said Efraim Levy, a New York-based equity analyst at Standard & Poor's with a ``hold'' rating on GM shares. ``We are seeing steadying progress, but it's not going to be in a straight line.''

Shares of GM fell 26 cents to $30.25 at 4:01 p.m. in New York Stock Exchange composite trading. GMAC's results are ``weighing on the stock right now,'' Levy said. The perceived risk of owning GM bonds rose.

Excluding some costs, GM had a profit of $180 million, or 32 cents a share. The fourth-quarter results included two months of earnings from the former General Motors Acceptance Corp. finance subsidiary. GM sold a majority stake in the unit, now called GMAC LLC, at the end of November.

Below Forecasts

GM's operating earnings were below analysts' forecasts of $1.22 a share because of the mortgage losses, GM Chief Financial Officer Fritz Henderson told reporters today. GMAC said yesterday that its home mortgage unit had a net loss of $128 million in the fourth quarter.

``The residential mortgage market has been a tough area over the last three, four, six months for GMAC,'' Wagoner said in an interview. ``On the other hand, the rest of their business is pretty good.''

The automaker's revenue for the quarter fell 1 percent to $51.2 billion. Sales from automotive and other operations excluding GMAC rose 2.7 percent to $44 billion. GM's automotive operations had a $194 million profit, compared with a $3.6 billion loss in the same quarter a year earlier.

Restatements

Last year's loss for GM was $2 billion, down from a loss of $10.4 billion in 2005. The automaker today adjusted the 2005 loss from $10.6 billion after restating results from 2002 through the third quarter of last year. The consecutive annual deficits were GM's first since 1991-92.

The automaker had postponed a planned Jan. 30 release until today to restate the earnings. The restatements added $245 million to GM shareholder equity as of Jan. 1, 2002, and added $249 million to net income over the restatement periods.

GM's improvement contrasts with the performance of Detroit- area rivals Ford Motor Co. and DaimlerChrysler AG's Chrysler unit. Ford reported a $12.7 billion loss in 2006, the worst deficit in its 103-year history, and Chrysler lost $1.5 billion.

Vindication

The performance also serves as vindication for Wagoner. At the quarter's start in early October, he rejected activist shareholder Kirk Kerkorian's push to form an alliance with Renault SA and Nissan Motor Co. Kerkorian said GM needed the help; Wagoner argued that GM was better off on its own.

GM's 8.375 percent note due July 2033 declined by 2.25 cents on the dollar to 89.75 cents on the dollar, according to Trace, the bond-price reporting system of the NASD. The yield increased to 9.4 percent.

The perceived risk of owning GM's bonds rose today, according to credit-default swap traders, as concerns about losses from the subprime mortgages pushed bond risk higher across the market.

Credit-default swaps based on $10 million of GM's bonds jumped $47,500 to $462,500, according to London-based CMA Datavision. The contracts, used to speculate on the company's ability to repay its debt, have risen more than $85,500 in the past two days, CMA prices show.

``It's a nice quarter for GM. A lot of thanks goes to the UAW for taking down their costs,'' said Mirko Mikelic, part of a team that manages $21 billion in fixed-income assets, including GM bonds at Fifth Third Asset Management in Grand Rapids, Michigan.

GM last year persuaded 34,300 United Auto Workers union members to leave early in an effort to align its U.S. manufacturing base with shrinking U.S. auto sales, most of them shed to Japan's Toyota. The company is also threatening to pass GM as the world's biggest automaker this year.

In the Woods

``They have to go for a strong product lineup across the board, a la Toyota,'' Mikelic said. They're still not out of the woods quite yet. We would not be a buyer.''

GM's automotive operations cut costs by $6.8 billion last year through job cuts and plant closings, $800 million more than GM expected. The cuts trimmed GM fixed costs to 30 percent of revenue. The goal is 25 percent by 2010.

``We know 2006 had to be a big, big year -- it was,'' Henderson told reporters. ``That said, no one is declaring victory, no one.'''

Wagoner is seeking to boost sales in countries such as Russia, India and China. Since Wagoner took over as GM's CEO in 2000, the automaker has risen to first place from second in 11 emerging-market countries.

GM said its pension fund ended 2006 $17.1 billion overfunded, an improvement from a $7.5 billion surplus at the end of 2005. GM had a return on its pension assets of 15 percent, Henderson said on a conference call.

Investment Strategy

The automaker is forecasting an 8.5 percent return this year, from a 9 percent forecast, because it is shifting 20 percent of its assets to fixed income from equity to adopt a more conservative investment approach, Henderson said.

GM's total retiree liability for pension and health care fell to $64.3 billion in 2006 from $81.2 billion in 2005 because of reductions in retiree health-care expenses.

The automaker, the largest private provider of health-care services to active and retired workers and their dependents, said health-care expenditures fell to $4.8 billion in 2006 from $5.4 billion in 2005 after concessions from hourly and salaried workers.

The company estimates $4.7 billion in health-care payments this year.

To contact the reporters on this story: Jeff Green in Detroit, at jgreen16@bloomberg.net; Bill Koenig in Southfield, Michigan, at wkoenig@bloomberg.net

Last Updated: March 14, 2007 16:28 EDT