Posted on 03/16/2005 10:25:18 AM PST by BurbankKarl
Declining sales and production cutbacks in North America are putting a huge crimp in General Motors’ earnings. That prompted the automaker on Wednesday to slash its expectations for this year.
GM expects to lose about $848 million, or $1.50 per share, in the first quarter excluding special items. In early January, the automaker had said it expected to break even for the quarter.
For the full year, GM now thinks it will post earnings in a range of $565 million to $1.13 billion -- or $1 to $2 per share -- excluding special items. That is a dramatic reduction from its earlier earnings forecast of $2.26 billion to $2.83 billion, or $4 to $5 per share.
In addition, GM foresees a $4 billion swing in its operating cash flow for the year -- from $2 billion to a negative $2 billion.
The automaker blamed lower sales in North America and a shift in the sales mix away from high-profit trucks to lower-profit cars for the earnings falloff.
GM's previous first-quarter earnings expectations were based on North American volume of 1.25 million vehicles. Since then, production schedules have been reduced by approximately 70,000 vehicles.
GM also expects negative operating cash flow in 2005 of approximately $2 billion, before the Fiat settlement and GM Europe restructuring, versus the previous target of positive $2 billion.
"Clearly we have significant challenges in North America. The rest of our automotive businesses, and GMAC, are running in line with, or ahead of, our expectations," said GM Chairman and CEO Rick Wagoner. "But North America is our biggest business, and the key driver of automotive earnings and cash flow. So it's important that we get this business right."
More cutbacks appear to be on the way.
"The competitive environment that we face in North America means we must continue to find ways to reduce our costs and grow revenue," warned GM Vice Chairman and Chief Financial Officer John Devine. "While we have made good progress in reducing costs over the last several years, the projected loss in North America reinforces our need to do much more."
"One of the issues we've had for North America is the increasing drag of health-care costs on North American profitability," Devine added on the conference call with Wagoner.
"I don't have any silver bullets on heath care … but clearly I think the weakening profitability this year has focused on our need to make progress on health care."
GM, the largest private provider of health care in the United States, had warned earlier that its medical expenses would increase by about $1 billion this year.
GM said its other automotive regions and GMAC are all on track to meet or beat their 2005 net income targets.
Euro bonds of GM plummeted after the company announced its profit warning.
Standard & Poor's on Wednesday revised its rating outlook on GM and its finance arm to negative from stable, setting the stage for a downgrade of the world's biggest carmaker to junk status.
A downgrade to junk status would likely significantly raise GM's borrowing costs. GM and its finance arm had about $300 billion in debt at the end of last year.
S&P said it views the rating as "tenuous" and could cut it at any time if it looked like GM was not on a trajectory to improve its financial performance in 2006 and beyond.
Moody's Investors Service and Fitch Ratings, which have GM's debt rated 2 and 3 notches above junk respectively, are likely to reconsider their ratings as well, analysts said.
Brought to you by the UAW.
Might as well give the bonds the same ratings as the cars. ;)
Management equally guilty. Pontiac recently discontinued their number one selling car, the Grand Am. Chevy discontinued the S-10. Replaced it with the Colorado-a five cylinder. Many balk at this "new" concept. Bubba just ain't sure about a 5 cylinder...
GM's pension expenses, healthcare costs, bloated bureaucracy, and union woes have all grown too large. It's too much overhead to tack onto the price of cars in a competitive global environment.
That, plus if you try to get a price quote from a dealer for a Corvette on the Chevy.com website you get an error.
...and the Camaro is gone. That model was only selling what, some 100,000 copies a year for how many decades?!
Its not your father's Oldsmobile.
...lousy, overpriced cars and the UAW.
WOW G M losses ? Maybe they can re-coop by "charging" the
marine reservist for parking on the G M lot during weekend
drills. (No BUSH bumper stickers allowed though)..........
You forgot unimaginative styling, and substandard engineering.
Now even the Oldsmobile is gone. Guess I know now how my dad felt when he lamented the demise of the Studebaker, Packard, etc.
I plan on sticking with US made pickups, but I did sneak a peek at Toyota...I feel so guilty!
FYI..Ford just killed the new T-Bird..
I assume Ford is keeping the Ranger? Haven't heard to the contrary.
"FYI..Ford just killed the new T-Bird.."
Don't worry, no one will notice!
GM has to pay $2Billion to Fiat and a similar amount to Mitshubitshi, where their program to expand market share globally failed (as their market share of USA cars slipped to under 40% at the expense of primarily Japanese cars). One terrific 10-year snafu, put into place (don't forget) by JACQUES NASSER.
"Brought to you by the UAW."
The UAW didn't design the beautiful and popular Aztec, didn't terminate the Camaro and Firebird with no replacement.
This is an obviously poorly managed company.
Here is GM management at its best: Years ago Chrysler designed a Concept vehicle that then got built and sold--the PT Cruiser.
GM has now hired the designer of the PT Cruiser, who has almost cloned it for GM. GM will introduce this vehicle.
Nothing original. No risks. No imagination. Declining sales and profits.
The market at work due to higher oil prices. I hope this US manufacturer has learned its lessons from the 1970 oil crisis...
More like brought by higher gasoline prices and lower dollars (in turn partly brought by the UAW.)
It was a stupid, overweight car and deserved to die.
This is no surprize. When 70% of your economy is consumer spending, and those consumers are losing jobs to outsourcing and immigration, and the lucky consumers who still have jobs are suffering pay cuts combined with tax increases, discretionary spending will decline.
Productivity is higher, and investment returns reflect that, but the investors reaping the benefits are a minority of the population of consumers. The individuals among the investor class aren't going to buy up the surplus vehicles just because they have the extra cash or the cash flow. Foreign markets in China and India haven't opened up as promised to buy up the surplus.
With declining sales, profits will decline. With declining profits, investment in the stocks will decline. With declining demand for the stocks, the stock prices will decline.
That is what happened in the late twenties, and it is happening again.
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