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.
Kerbeck and Bruce Gluek (is he still alive??) are two of the best.
But it's pretty sad when you use the Chevy.com website and get with error messages instead of *dealer* price quotes (the *factory* sticker quote part of their website works fine, though).
Not to mention they finally moved big into the SUV market 10 years plus behind Ford, just in time to see gas prices drive it all into the ground. Bad timing.
Kerbeck?
Did you buy it from that girl in their ads?
(Interesting thread on blaming the poor economy on everything from health care to the price of tea in China.)
That's Vicki! she is older then the picture in that ad.
No kidding!
You got that right. GM does not stand for good merchandise.
50 miles to the quart of oil
Aluminum cylider walls. Who would do that? Only GM.
Right on....methinks GM will survive : )
How about the 4-6-8 Caddy, Or the diesel 350 conversion : )
I see that picture every week in automotive news...she did look younger in the 90s....I remember when they cornered the marketing on Syclones and Typhoons.
Yes, but the delivery is polished.
And outsourcing.. People gotta be makin money to be able to spend it.
It reminded me of an egg.
You're dead wrong. People have been spending more money on cars every year. There is no lack of automobile buyers - people don't want to buy GM cars because they are far too expensive compared to other, better vehicles made by competitors.
People are making money and they are spending it wisely on well-built foreign cars that are superior in every way to GM cars.
If the UAW did not exist, GM could build cars much more efficiently right here in the US, like Nissan does in AL and BMW does in SC.
The UAW is destroying GM.
No, the UAW is a variable. What's destroying GM is the union, plus outsourcing plus the free trade crap that set the trade imbalznce in motion that is and has been undermining the US market little bits at a time. If there were an even playing field for US auto makers in America, GM would still be selling volume in Cars. As it is now, they can't compete because on an uneven playing field, the union now handicaps them completely. Free trade is nothing more than an unmasked all out offensive against the working class.
Do you subscribe to The Nation or something?
There is no "working class" in America any more than there is a "landed gentry" in this country. Marxist class analysis is about as applicable to our current situation as phrenology.
Americans who work for a living are not a "class" - they are 94% of the population.
I wonder why the GOP thinks a nation of poor destitute people will vote GOP? GOP policies of killing jobs and wealth production in the USA is going to be mean the permeate end of the GOP
GM.. switch to catastrophic care plans for your workers and self insure up to the cap... If GM put 5k per employee into an account for health care use, and insured only after the 5k was spent... (and what wasn't spent on the 5k is rolled over every year) you'd wind up cutting your recurring costs by 70 to 80%.... yes, up front cost is there, but long term return is there....
This is basically what we are going to be doing sooner or later anyway, why not be the first mover on the block?
What planet do you live on?
Yep; but, apparently to avoid that, some feel the need to distract with wierdness posing for useful discussion.
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