General Motors Posts Massive $3.3. BILLION Loss
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DETROIT — Bowing to grim reality, General Motors Corp. followed Ford's lead and cut its U.S. sales forecast Wednesday after a tough first quarter that saw a $3.3 billion loss.
But unlike Ford, GM faces more unknowns that could complicate its North American turnaround and drag down strong results overseas, including a strike at supplier American Axle, the protracted bankruptcy case of its former parts division, Delphi Corp., and unresolved labor talks in Canada.
GM's loss for the January-March period amounted to $5.74 per share, reflecting $2.9 billion in one-time charges. That compares with a profit of $62 million, or 11 cents per share, in the first quarter of 2007.
Without the one-time charges, GM lost $350 million, or 62 cents per share, handily beating Wall Street's expectations. On that news, investors sent GM's shares up 9.4 percent, or $2, to close at $23.20. Analysts surveyed by Thomson Financial had expected a loss of $1.60 per share.
Ray Young, GM's chief financial officer, said analysts may be underestimating the company's overseas growth. GM said revenues rose 20 percent outside North America thanks to strong expansion in China, Russia, Brazil and India. A record 64 percent of sales came from outside the U.S. in the quarter.
But problems persist in GM's home market. The Detroit-based automaker cut its industrywide U.S. sales outlook for 2008 to between 15.3 million and 15.5 million light vehicles from 16 million at the beginning of the year, largely due to plummeting sales of trucks and sport utility vehicles. That's still higher than Ford Motor Co., which is forecasting 15 million sales. Young said GM believes the second quarter will be weak but that things will improve later in the year as lower interest rates and federal stimulus measures kick in.
"We want to run our business conservatively. We want to be realistic," Young said.
Some analysts say GM's biggest problem has been its failure to plan for the weak U.S. market, where 2008 sales are expected to drop to a 14-year low.
"In our view, GM entered this year too optimistically, thus failing to manage its production and inventory appropriately," Calyon Securities analyst Mark Warnsman said in a note to investors.
But Lehman Brothers analyst Brian Johnson said he was encouraged by the company's decision to lower its forecast as well as its announcement this week that it will cut production at four U.S. truck and SUV plants, affecting 3,500 jobs. Johnson said those moves show GM's management recognizes how tough the U.S. sales environment has gotten.
The one-time items included a $1.45 billion charge to reflect a change in the value of GM's 49 percent share in GMAC Financial Services. Young said the company revalued its stake because of losses in GMAC's residential mortgage division.
GM also took a $731 million charge to reflect liabilities at Delphi. GM said it has taken $8.3 billion in Delphi-related charges to date as the supplier struggles to emerge from bankruptcy protection after two and a half years.
Ford, which reported a surprise $100 million first-quarter profit last week, helped its former parts division Visteon Corp. avoid bankruptcy with a 2005 bailout. It also hasn't been affected by the two-month strike at Detroit-based American Axle and Manufacturing Holdings Inc., which is in the midst of contentious labor negotiations with the United Auto Workers. American Axle spokeswoman Renee Rogers said talks were continuing Wednesday.
GM said the strike, which has affected 30 plants, cost it $800 million and 100,000 vehicles in the first quarter _ although several analysts said GM would have had to cut that production anyway. GM President and Chief Operating Officer Fritz Henderson said despite the losses, GM doesn't want to intervene.
"What we've tried to do is be helpful where we could be with the UAW and American Axle, but we really do not want to be involved," he said in a conference call.
Ford has another advantage: It already has agreed to a preliminary labor agreement with the Canadian Auto Workers. GM and Chrysler LLC have yet to reach theirs, but will now be pressured by the union to accept Ford's terms.
Henderson said he doesn't measure GM's progress against other automakers.
"I'm not going to get into the business of trying to compare us with Ford or us with anybody else. We've got to get the business turned around," he said. He added that all U.S. automakers will struggle this year with high gas prices and consumers' rapid switch to smaller, less profitable vehicles.
GM's revenue for the quarter totaled $42.7 billion, down from $43.4 billion a year ago.
The company lost $812 million in North America, compared with a loss of $208 million in the year-ago quarter. Its North American market share dropped from 22.5 percent to 21.7 percent.
Jonathan Steinmetz, an analyst with Morgan Stanley, expressed concern about GM's $3.4 billion cash burn for the quarter, and said the company should consider cutting its dividend and raising more capital. GM ended the quarter with $23.9 billion in cash and $7 billion in credit facilities. By comparison, Ford ended the quarter with total liquidity of $40.6 billion.
GM sold 2.25 million vehicles worldwide in the first quarter, down less than 1 percent from a year ago.
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General Motors Corp.: http://www.gm.com
DEE-ANN DURBIN | April 30, 2008 05:12 PM EST |
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