Ford Falters

Yesterday, Ford (NYSE: F), the world's second-largest automaker after General Motors (NYSE: GM), announced that its second-quarter earnings (excluding special items) were $0.61 per share ($1.3 billion), easily exceeding Wall Street's consensus estimate of $0.50 per share. However, the stock dropped more than 2.5% over the course of the trading day on a day when the overall market was up.

The reason investors sold off the stock was that the lion's share of Ford's profits came not from selling cars but from making loans. Ford Credit, the company's financing operation, contributed 95% of the pretax operating profit of $1.6 billion. That compares with GM, which noted in its quarterly release today that its financing unit, GMAC, contributed $860 million (or 62%) of total profits for the quarter.

Ford's core business of making and selling cars is not faring terribly well. Total profits were a mere $83 million. In North America, profits were up only 2% year-over-year despite a strengthening economy, while unit sales, market share, and revenues were all down as Ford continues to lose share to Japanese carmakers such as Honda (NYSE: HMC) and Toyota (NYSE: TM). In addition, car dealerships such as AutoNation (NYSE: AN), Sonic Automotive (NYSE: SAH), and Group 1 Automotive (NYSE: GPI) are all holding high levels of inventory, which has increased downward pressure on prices in recent months.

Europe was stronger than last year, with both sales and profits up significantly. However, business for some of the company's recently acquired brands such as Volvo and Jaguar was down significantly worldwide.

With the core automotive business not performing, investors are questioning the sustainability of the company's earnings. Higher interest rates will put pressure on financing profits. In addition, much of the improvement in financing was due to better credit loss performance -- repossessions were down to 2.7% from 3.2% in the previous quarter, and more than 60-day delinquencies on loans were also down, from 0.21% last quarter to 0.15% in the current quarter. If the consumer segment of the economy were to slow down, credit loss performance would very quickly deteriorate, and the impact on overall company profits could be ugly.

Until the company can turn around the decline in its core automotive business, Wall Street will remain skeptical of earnings at Ford driven by financing, even if they meet overall estimates.

Mathew Emmert has some strong words about Detroit's Big Three automakers in the new issue of Motley Fool Income Investor . Curious? Take a free trial to learn more.

Fool contributor Salim Haji lives in Denver and does not own shares in any of the companies mentioned.