GM's Financed Finances

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Did you hear the one about the car company that's actually not a car company? Well, OK, it's kind of a car company, the way the banker who lives across the street from me is kind of a full-time golfer.

Allow me to explain. GM (NYSE: GM) announced improved earnings this quarter, $1.3 billion, or $2.36 per share, up 49%. But the bottom line was boosted by oversized results from the company's finance arm, GMAC. The record $860 million tally dwarfs worldwide automotive earnings of $529 million -- not that there's anything wrong with that. It's just that the car part of the car business isn't executing as well, and the finance arm needs the automotive arm, or those juicy financing deals won't keep coming through.

Financing's outperformance is old news, and depending on it for an earnings boost is something GM shares in common with rival Ford (NYSE: F), as Salim Haji notes. Furthermore, the recent wave of 0% financing won't help prop up any of these firms' loan profits, and there's a great likelihood that the big cash incentives may not attract enough buyers out of an American public that is already stretched too thin.

Is GM running out of ideas? Revenues rose 7% on the quarter, but North American market share dropped a full point as competitors such as Toyota (NYSE: TM), Honda (NYSE: HMC), and Nissan (Nasdaq: NSANY) make further moves on U.S. turf. Market share gains in Europe were trounced by a loss that increased 15 times over last year's.

The brightest note was probably the 45% earnings boost in GM's Asian operations, where the firm has made some profitable gains in market share.

Looking forward, GM is maintaining its $7 per share earnings outlook. While that puts it at a forward P/E of 6, with a 4.5% dividend yield, I tend to agree with Mathew Emmert's assessment in the latest issue of Income Investor. This is a mediocre firm in a low-margin industry amid a period of slowing growth -- with a ton of cutthroat competition. Investors can find plenty of other companies with better promise for rewards and fewer risks.

For more auto industry Foolishness:

• How about a Chinese Cadillac?
• Consider Detroit's June downshift.

Fool contributor Seth Jayson drives junk cars when he has too, and has no position in any firm mentioned. View his Fool profile here.