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.
That is the same effect I got when I sat in some of the first Pontiac Firebirds and Chevy Camaros way back when the cars cost $2000 and up-engine models cost $3000. The entire interior was plastic and coming unglued already.
Long ago, my girlfriend at the time got a 128..when they first started coming over her..Cute car.. FWD, boxy, peppy...she liked it..Back then I enjoyed working on cars..oil changes, tune up..before everything was electronic circuits and computer chips. On this Italian POS, in order to change the spark plugs, you had to disengage the motor mounts and jack the block up three inches..
DAMN!!!! Give those union boys another raise!
No. I run straight 87 gas and the motor is the 325 cu. inch V-8. Its a 2001 and I have 55,000 miles on it with no failures of any kind. I run semi synthetic oil, but that's the only special thing I do.
LOL. That's what one gets for using the plight of GM as a sample-set.
No. Government employment is up, and they are doing well enough to offset the losses in other sectors.
Bush cut some taxes, others went up. Other increases in federal, state and local taxes more than offset the child tax credit which is the only tax cut most families have seen. The overall tax burden is higher each year because government spending keeps increasing regardless of which party is in power.
The 128 was a cute car. A few years in the winter salted roads of Iowa and Minnesota and you could see clear through them.
The auto industry is a major leader of the national economy. When autos sag, the economy slows. Which one is the cause and which the effect is not clear, it is somewhat symbiotic. Autos weaken, economy slows, other sectors, including housing follow. The question is how long and how deep the effects.
Actually TOTAL US car sales are up..including import brands.
Why are Toyota, BMW, and M/B expanding their US plants if auto sales are bad?
I had a 124 Spyder...bought it used..the second car I ever owned..didn't need brakes..like the Flintstones..the body pan was so rusted out..I just stuck my feet down..and the top, ARRRRRGGGGHHH!
You know, all those GM retirees pensions are held in GM stock.
Fix It Again Tony
The lower dollar. MB recently made the decision not to sell the B Class in the United States...but they are expanding their plant in Alabama. (They just killed the C Coupe in the US, due to poor sales)
>>>Why are Toyota, BMW, and M/B expanding their US plants if auto sales are bad?
That does not conflict with a slowing. Growth of new car sales is down, and some models, the big profit leaders, are not moving as well as hoped. Prices rose steadily and massively for several years, but now there are price cuts and they cannot increase sales by offering huge interest bargains since they have been doing that all along. Used car lots have sprung up all over town, and sales are good.
GM has been dropping a lot lately and was considered weak for quite a long time before. I would wait until the cycle completes and then maybe pick up some.
Also, MS is negotiating with a foreign company to build large plant their.
GMAC made alot of $ for GM. They could could break-even status. But not losses. Time will tell...
But the ReFi and mortgage booms are over!
>>>GMAC made alot of $ for GM. They could could break-even status. But not losses. Time will tell...
Oops! My "could could" should read:could COVER.
Analysts React to GM Warning
March 16, 2005 3:30 p.m.
General Motors Corp. was hammered in the market today after saying it expects to lose $1.50 a share in the first quarter. Analysts weren't too kind either, noting the auto maker's falling market share, reduced plans for car production, and fears that the company's debt could be downgraded to junk status. Here's a roundup of what Wall Street is saying. (Analyst disclosures follow.)
***
GM's outlook for 2005 is materially weaker. The downgrade is a result of the company's announcement that market conditions are pressuring results more than originally anticipated. As a result, the company now expects 2005 EPS to be in the range of $1.00 to $2.00, which is down from its previous guidance of $4.00 to $5.00.
-- Merrill Lynch analyst John Casesa, who downgraded the company to "sell" from "neutral."
***
We continue to believe GM's products are overpriced (relative to the Japanese brands) by 10% to 15% due to weak resale values, and that the Japanese brand year-over-year net pricing has been flattish. So, the problem is structural and GM needs to lower net price (on a year-over-year basis) relative to the Japanese brands (a costly task) in order to stop the share loss.
-- Ronald Tadross of Bank of America, who has a "sell" rating on the stock, and lowered his price target on the company to $23 from $27
***
Some of the first-quarter weakness probably relates to one-time pricing actions on midsize SUVs. We estimate the price cut on mid-SUVs would hurt EPS by about 35 cents to 40 cents in the first quarter. The magnitude of the miss vs. our forecast could suggest additional pricing action. Earnings and cash flow are much weaker than expected. This could suggest that GM's $2 dividend may be at risk.
-- Morgan Stanley analyst Stephen Girsky, who has an "equal-weight" rating on the stock
***
Key drivers of the shortfall are weakness in North American sales volume and a higher concentration of lower-margin passenger cars in its sales mix…we expect downward pressure on the shares this morning and would not view this as a buying opportunity.
-- Jon Rogers of Citigroup Global Markets, who has a "hold" rating on the stock with a $36 target price
***
We continue to believe GM is in a precarious position given lower GM North America production volumes, especially related to its highest profit platform, GMT800 [truck frame]; the challenging pricing environment; and less profitable mix (more cars/less trucks). We do not expect modest improvements from automotive operations outside North America to offset these domestic headwinds. … We remain confident that possible credit rating downgrades and a dividend cut are in the company's near-term future and will only add insult to injury.
-- Joseph Amaturo, analyst for Caylon Securities, who reiterated his "sell" rating on GM and lowered his price target to $24 from $30
***
This news … is a reflection of the challenges GM is facing in terms of pricing and mix for the vehicles it sells. Further, we believe that additional production cuts [in the second quarter] may be necessary to bring inventory in line in the short term, which could be an additional drag to earnings and operating cash flow for the year. Perhaps most significantly, we believe that this poor operating performance in North America could result in a dividend reduction, which we believe would be viewed negatively by the market. While the company stressed that it is on pace to meet expectations for its other global operations, as North America is its most important market, we believe the near-term risks clearly outweigh any other factors.
-- KeyBank Capital Markets analyst Brett Hoselton, who downgraded GM to "hold" from "buy"
***
For investors who need to be exposed to this automotive manufacturer, we recommend GMAC bonds over GM given that GMAC's receivables assets are of higher quality than GM's production facilities (which continue to suffer from shutdowns and write-offs). Also GMAC has additional funding sources outside of the unsecured debt markets. … We continue to be negative, longer-term on General Motors given continued pressure from foreign and "transplant" competition, a rising interest rate environment, and high labor and healthcare costs.
-- Brian Fox, analyst at McDonald Investments, of which KeyBanc Capital Markets is a division
--Compiled by Worth Civils and David Gaffen
just buy one from Kerbeck in Atlantic City over the phone and they will ship it to you at a fair price.
no, its got the Ecotec motors - it should be OK on fuel consumption.
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