A Tide of Red

Bad roads for General Motors

The severity of Detroit's auto depression was dramatically underscored last week. Mighty General Motors, which usually slides past industry slumps like a Cadillac Eldorado cruising around a minor bend in the road, reported a stunning second-quarter loss of $412 million. Overall this year, the company is expected to lose money for the first time since 1921.

The bad news looked even worse to analysts who dug into the firm's finances. Discounting tax credits, GM's operating deficit was $790 million, which is far and away the largest loss ever suffered on continuing operations by an American company in a single three-month period.

GM's troubles were reflective of the whole auto industry's. The company sold 41% fewer cars domestically in the second quarter this year than last, when it earned $1.2 billion. And few of the autos it was able to sell were the big option-laden models that produce the highest profits. Finally, the firm spent an estimated $2 billion in the last quarter on development of its new fuel-efficient fleet.

Nonetheless, GM is in a better position than its U.S. competitors. Tiny American Motors reported a record $85 million loss, which is proportionately five times larger than GM's. This week, Ford and Chrysler are expected to announce deficits that could total $1 billion.

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