General Motors Reports First Quarter Loss of $1.1 Billion
April 19 (Bloomberg) -- General Motors Corp., the world's biggest automaker, reported a first-quarter net loss of $1.1 billion as U.S. sales fell and the company lost market share to Toyota Motor Corp. and other Asian competitors.
The loss was $1.95 a share, compared with net income of $1.28 billion, or $2.25 a share, for the same period a year earlier, the Detroit-based company said today in a statement. The loss increases pressure on Chief Executive Officer Rick Wagoner to cut costs, boost U.S. sales and renegotiate labor contracts with his biggest union.
``The market is hoping he's going to get tough and be kind of a slash-and-burn guy right now,'' Sasha Kamper, who helps manage about $65 billion at Principal Global Advisors in Des Moines, Iowa, including GM debt, said before the loss was announced. ``Wagoner has been viewed as more of a consensus-type manager.''
Wagoner, 52, said last month that GM has to stop a U.S. market share slump running at 80-year lows, reduce spending and find a way to beat back challenges from Toyota. The CEO has sought counsel from dealers and reorganized engineering and marketing staffs to avoid a third-straight loss in the current quarter.
GM reported a $1.48-a-share loss, excluding some items. On that basis, the automaker was expected to lose a $1.49 per share, according to a Thomson Financial survey of 14 analysts. GM forecast an adjusted loss of $1.50 per share in a March 16 statement, citing slumping U.S. sales and production.
Rising costs and falling sales also may prompt ratings services to further downgrade GM's $300 billion in long-term and short-term debt, most of it at the auto finance unit. GM's rating is being reviewed by Standard & Spoor's, Fitch Ratings and Monody's Investors Service. S&P downgraded GM to its lowest investment grade on Oct. 14. Fitch followed in March, and Monody's dropped the automaker to the lowest rung on April 5.
Investors Skeptical
Investors have been skeptical. GM revealed on April 14 that it hadn't asked officials of the United Auto Workers union to revise their current contract to reduce health-care costs. The announcement sent GM shares skidding for a fifth straight day, to their lowest point in 12 years. GM's shares have fallen 22 percent since March 15, the day before the revised forecast.
Kamper and Dan Genter, president of RNC Genter Capital Management in Los Angeles, said GM needs to get concessions from its 112,000 UAW members that would give the company more control over closing plants and reduce its health-care tab.
``They are going to have to take major steps with the union,'' said Genter, who helps manage $2 billion including GM debt, before the results were released. ``It costs them more per car in health-care benefits than it does in raw-material costs. They have to address this aggressively.''
Health Bill
GM's health-care costs are expected to rise 7.7 percent this year to $5.6 billion. John Buttermore, vice president of labor relations for GM in North America, told reporters April 14 that ``within the agreement there's a lot we can do, but there's a lot we need to do. We need to keep working on this with a strong sense of urgency.''
The automaker has 1.1 million employees, retirees and dependents covered by its health plan. Those benefits add about $1,525 to the cost of each U.S. car and truck sold domestically. Asian automakers such as Toyota don't face similar costs at U.S. plants because they have a younger workforce and fewer retirees.
Wagoner on March 16 also slashed the 2005 profit forecast to $1 to $2 a share from an earlier estimate of $4 to $5 a share on the same basis. A fourth-quarter profit was restated that day as a loss of $95 million, or 17 cents.
``North America is the big problem right now,'' Rebecca Lindland, a forecaster for Lexington, Massachusetts-based Global Insight Inc., said in an interview before today's announcement.
Cut Prices, Avoid Incentives
Part of Wagoner's strategy is to cut car and truck prices so that fewer incentives are necessary. At the same time, the company plans to increase North American marketing and advertising to attract buyers. GM's U.S. sales fell 5.1 percent in the first quarter, and its U.S. market share fell to 25.6 percent from 26.8 percent a year earlier. North American production was cut 12 percent in the quarter as sales of U.S. brands fell 5.1 percent.
GM will come up with a plan to eliminate or trim 1 million cars and trucks worth of excess production capacity, equivalent to about eight assembly plants, within the next two quarters, wrote Prudential Equity Group Inc. analyst Michael Bruynesteyn. The cost cutting will increase value, he said.
When GM last had losses as steep as those today, the company was in the midst of 10 quarterly losses from 1990 through 1992. During that time, the company ousted CEO Robert Stempel and set out to close 21 parts and assembly plants and eliminate 75,000 jobs. This is the first time since then that investors have sensed a crisis, Principal's Kamper said.
``Historically, the market's perception is that these guys have been too darn nice,'' she said. ``Things are bad enough that the market clearly feels it's time to get some real concessions, and it's time to cut costs aggressively and totally rework the system.''
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