GM lost $1.1 billion in first quarter

Carmaker blames slow sales and health care cost `crisis'

April 20, 2005|By KNIGHT RIDDER/TRIBUNE

DETROIT - General Motors Corp. reported its biggest quarterly loss in 13 years yesterday as sales of GM's trucks slowed, response to its newer cars was tepid and health care costs became what GM called "a crisis."

GM's financial picture has deteriorated significantly since the first quarter a year ago, as it swung from a profit of more than $1 billion for the first three months of 2004 to a loss of more than $1 billion for the quarter this year.

The last time GM lost this much money in a three-month period was in 1992, when the automaker was flirting with bankruptcy. GM's financial situation is not thought to be as onerous this time, but with Asian automakers gobbling up more of the U.S. market and customer demand for GM's profit-making trucks falling fast, the outlook for the rest of the year is bleak.

GM abandoned its previous financial forecasts for the rest of the year, telling Wall Street it can no longer predict what it expects to spend, make or lose this year. That previous forecast was made March 16, leaving Wall Street to wonder what had changed in 34 days.

"Given the uncertainty affecting key elements of our financial forecast, such as the resolution of the health care cost crisis, GM has determined that it will not provide earnings guidance for the 2005 calendar year at this time," GM's statement said.

Most on Wall Street took GM's comments as a not-so-subtle attempt to force the UAW to reopen its four-year labor contract 19 months into it.

The loss in the first three months of this year can be pinned almost exclusively on GM's North American auto operations, which swung from a first-quarter profit last year of $401 million to a loss of $1.33 billion this year. The automaker's financial division, GMAC, made money, as did GM's operations in Asia Pacific, the Middle East and Latin America.

"North America is obviously the biggest issue we have, our biggest business," said GM Chief Financial Officer John M. Devine. "And really, the loss we're seeing in North America for the first quarter accounts for - more than accounts for - our total loss in the business."

A few Wall Street analysts and other auto experts have predicted or called for a major cost-cutting plan at GM that would close several plants and eliminate 10,000 to 20,000 jobs. The company is closing its Baltimore van assembly plant May 13.

A larger number of Wall Street analysts have said that kind of restructuring wouldn't necessarily solve GM's problems because those laid-off workers would still be paid at least some of their paychecks and would still get health care benefits.

"It would just be a Band-Aid. What they've got to do is make some decent, competitive cars and trucks that will sell well," said Daman Blakeney, an auto analyst at Victory Capital Management, a New York firm that manages about $50 billion.

GM lost $1.1 billion in the January-March period, or $1.95 a share, compared with earnings of $1.3 billion, or $2.25 a share, in last year's quarter.

Devine blamed rising health care costs several times and mentioned health care discussions with labor a number of times, a reference to the UAW.

Devine also said the automaker, if strapped for cash, could start to tap a $20 billion fund it started in 1997 to set aside money for future retiree benefits.

Devine said GM has not used that fund but could "extract it pretty aggressively if we have to."

GM spent $5.2 billion in cash last year on health care for 1.1 million employees, retirees and their dependents. It expects that to jump to $5.6 billion or more this year.

GM had several one-time charges that made the quarter look even worse. It took a charge of $422 million for its restructuring of European operations, where it shed 6,000 jobs. It also took a charge of $148 million for early-retirement buyouts of 2,800 white-collar workers in North America.

GM also took a first-quarter charge of $84 million for the closing of the Lansing, Mich., assembly plant that made the discontinued Pontiac Grand Am and Chevy Malibu.

Without those charges, GM lost $839 million, or $1.48 a share, compared with net income of $1.2 billion, or $2.12 a share, a year ago.

That was in line with Wall Street expectations of a loss of $1.49 a share.

One of the longer-term issues that concern the financial analysts and investors on Wall Street is that GM has started to burn through its cash.

GM said its cash, marketable securities and available assets from an employee health care trust fund fell from $23.3 billion Dec. 31 to $19.8 billion March 31, excluding financing and insurance operations..

GM stock closed at $26.09 in trading on the New York Stock Exchange yesterday, down 10 cents.

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