GM vows losses will end in '93 Firm seeks to calm skeptical investors

November 13, 1992|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- At a special meeting called to placate skeptical Wall Street investors, General Motors Corp.'s new managers promised yesterday to halve the company's record losses in North America this year and eliminate them completely in 1993.

If the predictions prove true, and the stumbling giant's other operations remain profitable, 1993 would be GM's first profitable year after three years of stunning losses.

Analysts, however, remained skeptical, despite the much-awaited meeting with the company at GM's New York headquarters.

"Cutting their losses in half isn't going to do it," said Thomas Galvin, an auto industry analyst with C.J. Lawrence Inc. "As for getting into the black next year, they've talked about that in the past. We'll have to wait and see if it really takes place."

GM stock closed yesterday at $30.25 a share on the New York Stock Exchange, up 21.5 cents.

Last year alone, GM lost an estimated $7.5 billion in its key North American operations, leading to a companywide loss of $4.5 billion, the largest in U.S. corporate history.

"We're not depending on an economic upturn to turn us around," said John F. Smith Jr., GM's chief executive officer. "We're implementing fundamental changes that will allow us to be profitable even in an economic downturn."

To help attain that goal, Mr. Smith, who was appointed to his post 10 days ago after top management was fired by the GM's board, said more blue- and white-collar jobs could be cut in addition to those already announced.

The current cost-cutting program for North America calls for 21 plants to be closed, the number of blue-collar employees to shrink to 288,000 by the end of this year and down to 250,000 by 1995. That compared with 329,000 workers in 1990. The company has also said it will reduce the number of white-collar salaried staff to to 76,000 next year, from 136,000 in 1985.

Mr. Smith said the staff reductions for 1992 were ahead of schedule and predicted that even more white-collar workers would be fired from GM's enormous bureaucracy -- perhaps as many as 10,000 more positions, which he said would make GM as lean as the Ford Motor Co.

No new layoffs or plant closings were announced yesterday. GM has named 14 of the 21 plants that are to close. The remaining seven probably will be made known by the first week of December, officials said.

"As you know, we've been fatter than the competition, but we're going to get lean fast," Mr. Smith told reporters after meeting with about 200 Wall Street analysts.

TC The world's largest automaker, GM is also the nation's largest employer. A GM minivan plant in Baltimore provides work for more than 3,000.

William E. Hoglund, executive vice president, said the layoffs had resulted in about $1 billion of the $3 billion that the North American operations has pared from last year's $6.1 billion in pretax losses for the first nine months of the year.

A sign of the changing fortunes, Mr. Hoglund said, was that preliminary figures for October showed the company marginally in the black.

Despite the good news for October, the final quarter of the year, which runs from Oct. 1 through Dec. 31, would not be profitable, he said.

In all, the company is expected to lose between $3 billion and $4 billion in North America this year. The corporation's total losses will depend on the results of its more profitable overseas operations.

But analysts said that the reductions in GM's losses were only a first step and that predictions of profitability next year had a familiar ring.

Mr. Galvin, with C.J. Lawrence, said that if GM really does slash its losses in North America to under $4 billion this year, it might be unreasonable to expect GM to cut losses by another $4 billion next year and return to profitability.

John E. Hilton, an auto analyst for Argus Research, said he, too, was skeptical, though willing to give the new management a chance.

While some analysts have recommended buying GM stock, Mr. Hilton is one of many who think that GM's stock remains too risky to hold because its prospects are so uncertain.

"I'm not going to raise my investment recommendation on GM until I see evidence that things have turned around," Mr. Hilton said.

Mr. Galvin said GM must hurry to regain profitability because investors will become more impatient.

Auto stocks, he said, are traditionally seen as a safe source of dividends. GM's decision two weeks ago to slash its dividend for the second time in two years, however, will dampen many investors' interest, Mr. Galvin said.

"They made a good presentation, but now we have to see if they really can follow through," Mr. Galvin said.

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