GM Reports $286-Million Loss,
Much Worse Than Expected 

The automaker blames a cut in production, rising healthcare costs and low profit margins for the second-quarter results. 

ROGER VINCENT / Los Angeles Times 21jul2005

[Wall Street Journal article below]

General Motors Corp. continued its financial skid Wednesday as the world's largest automaker missed Wall Street's earnings expectations by a wide margin and posted its third straight quarterly loss.

GM posted a second-quarter loss of $286 million, or 51 cents a share, contrasted with net income of $1.38 billion, or $2.42, a year ago.

On average, analysts had forecast a second-quarter profit of 3 cents a share.

GM's revenue fell 1.5% to $48.5 billion from $49.3 billion last year.

Dragging GM down was its miserable performance in North America, where the maker of Chevrolet, Cadillac, Pontiac and other well-known brands suffered an operating loss of $1.2 billion after earning $355 million in 2004.

"They lost twice as much as I thought they were going to in North America," said analyst David Healy of Burnham Securities. Healy said he would probably widen his full-year GM loss estimate from $3.44 a share, already one of the biggest loss forecasts on Wall Street.

"To use that old cliche, I think the light at the end of the tunnel is the train coming the other way," said Healy, who sees little upside for the automaker and expects a larger loss in 2006.

GM blamed the second-quarter loss on lower production — down 142,000 vehicles from a year ago — as the company faced bloated inventories and sluggish sales of trucks and sport utility vehicles.

The automaker cut its vehicle production in North America by about 10% in the second quarter and is sticking with plans for a 9% cut this quarter. GM's Chief Financial Officer John Devine said lower production was the chief reason for the loss in North America; even when plants are idle, the company still pays union workers' wages.

Rising healthcare costs and low profit margins on vehicle fleet sales were also a drag on earnings. In June, GM extended its employee discount plan to all customers to jump-start sales. Although the program boosted its U.S. sales by 41% for the month, it added little to the bottom line.

"They have cleaned out inventories, but that has come at a price," said Brett Hoselton, an analyst with KeyBanc Capital in Cleveland.

GM Chief Executive Rick Wagoner acknowledged that the company's North American "financial performance continued to be very disappointing." It "reemphasizes the need for us to significantly improve our cost structure in all major areas — material costs, productivity, capacity utilization and especially healthcare."

The automaker has 1.1 million employees, retirees and dependents covered by its medical plans. GM's healthcare costs are estimated at about $1,500 per vehicle and the company is attempting to win concessions on medical costs from the United Auto Workers union.

There were some pluses in the second quarter, Wagoner said.

GM Europe earned $37 million, contrasted with a loss of $45 million a year earlier, as the company restructured and reduced costs, giving it the first profitable quarter in five years in Europe.

Also bolstering its performance was General Motors Acceptance Corp., GM's finance arm. GMAC reported net income of $816 million, down slightly from $846 million a year ago.

But like crosstown rival Ford Motor Co., GM has been hit hard by a shift this year in consumers' buying habits, resulting in a significant slowdown in sales of mid- and full-sized SUVs, their most profitable models.

Rising prices at the pump are keeping the pressure on SUV sales. "People will wonder why they have these things when they fill up for $60," Healy said.

He predicted that U.S. buyers would continue to move toward traditional cars and so-called crossover vehicles like the Ford Freestyle instead of buying such big rides as Chevy's Tahoe and Suburban.

GM shares fell 25 cents Wednesday to $36.58. The stock has fallen 9% this year.

*

Times wire services were used in compiling this report.

source: http://www.latimes.com/business/investing/la-fi-gm21jul21,1,7186134.story?coll=la-headlines-business-invest 22jul2005

GM Reports Net Loss Of $286 Million

LEE HAWKINS JR. / Wall Street Journal 21jul2005

General Motors Corp. reported a second-quarter net loss of $286 million, or 51 cents a share, as its core North American auto operations had a loss of $1.2 billion, disappointing investors who had bid up the company's shares in recent days after a strong June sales performance in the U.S.

GM's loss, and the Detroit-based company's failure to offer much new yesterday about its strategy to stop the bleeding, sent its shares down 25 cents to $36.58 in New York Stock Exchange composite trading at 4 p.m. As recently as June 6, GM's shares were trading at about $30 a share, but buyers pushed the stock up as high as $37 a share last week as GM's "Employee Discounts for Everyone" promotion generated stronger-than-expected sales.

The second-quarter loss by the world's largest auto maker in terms of production compares with year-earlier net income of $1.38 billion, or $2.42 a share. GM's global automotive operations lost $948 million, as profitable results in three of its four regions were eclipsed by the North American loss. Revenue fell 1.5% to $48.51 billion from $49.25 billion.

GM's disappointing report came on the heels of downbeat results Tuesday from U.S. car maker Ford Motor Co., which said second-quarter net income skidded 19% to $946 million, mainly because of a $907 million pretax loss at its North American operations. GM and Ford are suffering in part because demand for sport-utility vehicles, some of their highest-margin vehicles, has slumped in recent months as gasoline prices have risen and competition from Asian and European rivals has sliced away at their once lucrative truck franchises. (See related article on page D1.)

Chief Financial Officer John Devine yesterday offered little new on how GM plans to reverse the North American losses in the absence of major concessions by the United Auto Workers. The results come as GM has been in talks with the union for months, hoping to persuade UAW leaders to concede health benefits for retirees and union workers.

The company said earlier this year that it expects to cut 25,000 employees over the next three years, although that number roughly equals the company's recent rate of annual attrition. Meanwhile, rising materials costs represent an increasing challenge for both GM and Ford, which have tried to prevent suppliers from passing along rising prices for steel, plastics and other commodities. But the auto companies face a growing list of parts makers in financial trouble.

In the short term, Mr. Devine said, GM's plan is to try to increase revenue by launching more desirable new models. GM also plans to increase spending on new-model development and advertising and overhaul its 2006 model pricing strategy in an attempt to move closer toward no-haggle sticker prices.

Among the positive developments for GM: Its global market share rose, as did its share in North America. GM Europe posted its first profit from operations in five years, although a $126 million restructuring charge more than offset the slim $37 million gain.

But none of that could offset the impact of the collapse in North America. GM North America's second-quarter loss compared with profit of $355 million a year earlier. GM North America has rolled up about $2.5 billion in losses during the past six months.

GM North America's results "re-emphasize the need for us to significantly improve our cost structure in all major areas -- material costs, productivity, capacity utilization and especially health care," said GM Chairman and Chief Executive Officer Rick Wagoner.

The success in June of GM's employee-discount offer helped to slash GM's bulging inventories in its home market by 224,000 vehicles from the end of the first quarter to about one million currently. But GM books revenue on production, not retail sales. Its second-quarter North American production was down by 142,000 vehicles, or about 10%.

GM moved inventory at the expense of moving cars and trucks right off the assembly line, said Mr. Devine. "If we had kept inventories at the high level, we would have been break-even" for the quarter.

In the Asian-Pacific region, GM reported profit of $176 million, up from $60 million in the first quarter but below the $259 million earned in the year-earlier quarter. "China is down but it's still very profitable," Mr. Devine said. The company's market share in the region rose to 6.3%, up from 5.6% a year earlier, led mainly by gains in China and Thailand. He said profits have been strong in the region despite pricing pressures, but the company is pushing forward with plans for a new plant in the region. China continues to be GM's most promising market, with sales rising 37% in the second quarter, compared with an overall market average of 17% growth.

In Europe, GM reported a loss of $89 million, including restructuring charges, compared with a loss of $45 million a year earlier. In Latin America, GM earned $33 million, compared with net income of $10 million.

GM's General Motors Acceptance Corp., which finances vehicles and sells mortgage and insurance, earned $816 million, compared with $846 million a year earlier. The company said lower earnings from financing operations were partially offset by increased earnings from mortgage and insurance operations.

GMAC's financing operations earned $378 million, down from $452 million, reflecting mainly lower net-interest margins.

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