May 3 (Bloomberg) -- General Motors Corp. said first-quarter profit plunged 90 percent, dragged down by bad loans at the GMAC LLC finance unit and continued automotive losses in North America.

Net income dropped to $62 million from $602 million a year earlier, the Detroit-based automaker said today. Revenue declined 16 percent to $43.9 billion, largely reflecting the November sale of a majority of GMAC. GM shares fell the most in almost seven months and its bonds also declined.

``GM's going to have to pay very close attention to this housing market because that's obviously a big drain on their profits,'' said Bradley Rubin, an analyst with BNP Paribas in New York. ``The restructuring program did seem to help, but GM should be making money in North America by now.''

Cuts in labor and health-care costs failed to make the North American auto operations profitable as GM lost $46 million in the region. Rising material costs and a 15 percent reduction in vehicle output curbed profits. Analysts including Lehman Brothers' Brian Johnson had expected the North American unit to make money.

``We took about 200,000 units of production in the first quarter to reduce dealer inventories versus a year ago and to reduce sales to daily rental companies,'' Chief Executive Officer Rick Wagoner said in an interview today. ``The business is still about a break-even business, so we've got a lot of work to do.''

`Disappointing'

The results came nine days after Wagoner reassured employees that his plan to end losses is working. His message was prompted by Toyota Motor Corp.'s passing of GM in first-quarter global sales. GM has been No. 1 in the world for 76 years.

``For them to show an operating loss was disappointing,'' said Pete Hastings, a fixed-income analyst for Morgan Keegan & Co. in Memphis, Tennessee. ``We knew that production was down, but we had expected the cost savings from the headcount reductions and other cost-savings initiatives that they'd implemented to offset that.''

The per-share profit fell to 11 cents a share from $1.06. Excluding one-time costs, profit was 17 cents. On that basis, it trailed the 83-cent average estimate of 12 analysts surveyed by Bloomberg. The shares declined $1.75, or 5.4 percent, to $30.69 at 4:03 p.m. in New York Stock Exchange composite trading, their biggest percentage drop since Oct. 6.

GMAC yesterday posted a $305 million first-quarter loss. The auto and home lender was wholly owned by GM until late last year. GM retained a 49 percent stake after selling the rest to a group led by Cerberus Capital Management LP.

ResCap Loss

A ``sharp downturn'' in the U.S. mortgage market pushed GMAC's Residential Capital LLC unit to a $905 million loss compared with year-earlier earnings of $201 million, GMAC said. The parent company injected $1 billion in equity into ResCap this year through April to shore up the unit's cash position.

Chief Financial Officer Fritz Henderson predicted ``considerable improvement'' in the subprime ``maelstrom'' at GMAC's mortgage unit, with narrower losses this quarter.

Analyst Brett Hoselton of KeyBanc Capital Markets in Cleveland changed his recommendation on GM shares to ``hold'' from ``buy'' today because of the mortgage losses.

GM's cash, marketable securities and funds available from a retiree health-care fund fell to $24.7 billion at the end of March from $26.4 billion at the end of December as GM made a $1 billion payout to GMAC and another $1 billion for a convertible bond payment, Henderson said.

He reiterated today that GM doesn't expect to generate positive cash flow this year, even as cash flow improves.

GM's 8.375 percent note due July 2033 fell 0.06 cent to 91.38 cents on the dollar today, according to Trace, the NASD's bond-price reporting system. The yield rose to 9.3 percent.

North America Auto

GM's North American automotive loss narrowed to $46 million from $292 million. Profit from automotive and other operations excluding GMAC rose 40 percent to $148 million. GM's automotive operations had a $272 million profit, down from $295 million a year earlier. GM reported a $5 million profit in Europe.

GM said that on adjusted basis, the automotive profit was $304 million, up from $40 million.

The automaker's revenue from the Asia Pacific region rose 35 percent. Net income fell to $116 million from $492 million, mostly because the 2006 quarter included a $395 million gain from the sale of a stake in Suzuki Motor Corp. On an adjusted basis, excluding that gain and other costs, GM's Asia Pacific profit rose to $150 million from $97 million, Henderson said.

Mortgage Loss `the Difference'

The shortfall from analysts' estimates ``is fully accounted for by the GMAC earnings announced yesterday,'' said Wagoner in an interview. ``The residential mortgage business took a big loss in the first quarter. When you consolidate our piece of that, it accounts for the difference.''

After a $10.4 billion 2005 deficit, Wagoner pared the 2006 loss to $2 billion with union buyouts, plant closings and cuts in health-care costs. GM may earn $3.85 a share this year, the average estimate of 12 in a Bloomberg survey.

GM trimmed automotive-operations costs by $6.8 billion in 2006, $800 million more than projected, by shedding jobs and shutting plants. The cuts whittled fixed costs to 30 percent of revenue. The goal is 25 percent by 2010, and Wagoner reiterated today that he plans to cut expenses by $9 billion this year.

Early Retirements

Last year, Wagoner, 54, persuaded 34,300 United Auto Workers union members to leave early in an effort to match GM's U.S. manufacturing base with shrinking U.S. auto sales, most of them shed to Japan's Toyota.

Last year's first quarter included the gain from selling the stake in Suzuki and $143 million in costs to pay for closing plants and buying out workers. GM restated the Suzuki gain today from $372 million.

Credit-default swaps based on $10 million of GM's bonds gained $13,800, or 3.3 percent, to $431,200, according to CMA Datavision in London. The contracts are used to speculate on GM's ability to repay its debt.

Henderson said he expects ``significant'' progress on resolving the Delphi Corp. bankruptcy this month and next.

GM has agreed to cover the retirement costs for certain former GM employees at Delphi as part of the 1999 accord that spun off the auto-parts maker.

Delphi is in negotiations to allow a group of private equity firms, led by Appaloosa Management LP, to invest $3.4 billion in the company. Delphi said last month that it expects the former lead bidder, Cerberus, to back out of the deal.

Henderson said there has been interest by several other investors to join the deal and he's still confident an agreement can be reached.

To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net; Greg Bensinger in New York at gbensinger1@bloomberg.net.

Last Updated: May 3, 2007 16:10 EDT