GM net loss $4.8 billion, much worse than expected

[Jarrek]

GM net loss $4.8 billion, much worse than expected
Thu Jan 26, 2006 10:11 AM ET
Printer Friendly | Email Article | Reprints | RSS

DETROIT (Reuters) - General Motors Corp. (GM.N: Quote, Profile, Research) posted a fourth-quarter net loss of $4.8 billion on Thursday, much worse than Wall Street had expected, amid high costs, shrinking market share and sluggish sales of sport utility vehicles.

It was the fifth straight quarterly loss for the world's largest automaker and brought its losses for all of 2005 to $8.6 billion.

"The numbers are much worse than I thought they would be, especially given how Ford beat the estimates earlier this week," Argus Research analyst Kevin Tynan said.

On Monday, Ford Motor Co. (F.N: Quote, Profile, Research) reported a surprising 19 percent rise in fourth-quarter earnings.

GM shares dropped 80 cents, or 3.35 percent, to $23.05 in early trading on the New York Stock Exchange. The company's 8.375 percent bonds due in 2033 were quoted at 72.5 cents on the dollar, down 0.5 cent, according to MarketAxess.

The earnings report came a day after news that billionaire investor Kirk Kerkorian had raised his stake in GM to 9.9 percent. Kerkorian has called for sweeping changes at the auto giant, and a key adviser has suggested he might be prepared to organize a fight for control of the GM board.

GM's fourth-quarter loss amounted to $8.45 a share, compared with a year-earlier loss of $99 million, or 18 cents a share.

Excluding one-time items, the company posted a loss of $1.2 billion, or $2.09 a share. On that basis, analysts' average forecast was a loss of 12 cents a share, according to Reuters Estimates.

One-time items reduced earnings by $3.6 billion, or $6.36 a share. They included a restructuring charge of $1.3 billion at GM's North American operations, and a preliminary after-tax charge of $2.3 billion related to a benefit guarantee with the United Auto Workers union and bankrupt auto parts supplier Delphi Corp. (DPHIQ.PK: Quote, Profile, Research).

Analysts were expecting charges after GM in October announced plans to slash 30,000 jobs and shutter 12 facilities, but no one knew how large the charges would be.

Fourth-quarter revenue fell to $51.2 billion from $51.4 billion a year earlier.

"It was a year in which two significant fundamental weaknesses in our North American operations were fully exposed -- our huge legacy cost burden and our inability to adjust structural costs in line with falling revenue," Chief Executive Rick Wagoner said in a statement.

GM earlier this month said it expects to cut North American structural costs by $6 billion by the end of 2006.

GM said its automotive operations lost $1.5 billion in the fourth quarter, driven by large losses in North America, where it has been losing market share to foreign rivals such as Toyota Motor Corp. (7203.T: Quote, Profile, Research).

General Motors Acceptance Corp., the company's finance unit, posted net income of $614 million, down from $683 million a year earlier.

The automaker plans to sell a controlling stake in its finance arm in order to restore the unit's investment-grade ratings. Both GM and GMAC have said talks with potential partners are "ongoing."



© Reuters 2006. All Rights Reserved.

 

[bizorky]

To think that GM could go bankrupt. Once the world's largest industrial corporation. Sad.

 

[wonderboy905]

If it weren't for ridiculous deals cut with the unions GM would probably have turned a profit. GMAC for example remains incredibly profitable. Not the end of the world, this has happened before and it will happen again.

 

[blixa442]

That's usually what happens when you combine stupid unions with stupid management.

 

[Mislav]

If it weren't for ridiculous deals cut with the unions GM would probably have turned a profit.

The problem is that many unions have started to place unreasonable demands (how the tide has changed). There has to be a balance between them and management or else "good" jobs will be insecure jobs as is shown here.

 

[Ed007Toronto]

I blame management more than I blame labour. Its not labour that produced all those shitty cars for so many years. 35 years ago GM had a 50% market share in the US. Today its half of that. Don't give the market the cars they want and they will go elsewhere.

GM's current problems are largely due to the heavy cost of carrying so many retirees. This would not be such a burden hadn't they had to constantly downsize (adding to the number of retired workers). And if they still had a 50% market share they'd easily have the resources to carry these costs.

It was management that spent money on buying EDS and Hughes instead of pouring money into cars. Meanwhile the Japanese stayed focused.

It was management that butchered brands like Cadillac, Corvette and others likes Olds.

It was management that bought foolishly into foreign brands (remember the Fiat and Subaru debacles?) that resulted in huges loses.

And it is management that continues to pay a dividend today while the piggybank shrinks.

 

[wonderboy905]

I blame management more than I blame labour. Its not labour that produced all those shitty cars for so many years. 35 years ago GM had a 50% market share in the US. Today its half of that. Don't give the market the cars they want and they will go elsewhere.

How can any company maintain that market share when the competition triples? GM has obviously had less than stellar management, but with the tough competition now from Europe, Japan, Korea and with Chrysler and Ford pumping out their best product lines in decades it's hard to imagine GM having more market share than they currently do. The companay clearly should have changed gears a long time ago and that management should be blamed, but going from 50% of the market to where they are now has nothing to do with not supplying the market with cars they want. I guess Coca Cola didn't supply the market with the cola people wanted when it went from over 90% of the cola market in the 50's to 40% of the market in the early 80's... competition happens.

It was management that butchered brands like Cadillac, Corvette and others likes Olds.

Funny how Corvette is probably the premiere sports car on the planet and has been so long before GM's current problems cropped up. I guess producing world class cars at affordable prices is a stupid strategy, not defending GM, but blasting the Corvette in present or past form is truly asinine. Cadillac on the other hand as a brand has come full circle. It's lineup is on par with any top European or Japanese luxury maker from top to bottom (excluding the uber luxury market such as Bentley) in terms of performance, build quality and technology. Perhaps they hung on to the 'ol sofa on wheels thing for too long but no one would laugh at you for buying an XLR over an SLK, in fact they'd probably say you made the right choice. Olds had to go. It's a shame that the last crop of Oldsmobile cars were among GM's best (the Alero was what the grand am should have been) but really the brand had no place. GM did the right thing getting rid of olds, the problem is they should have done it before the 1990's kicked in. It was a brand awkwardly sandwiched between Buick and Chevrolet.

 

[shawnmicallef]

The manager of my mom's GM plant in Windsor would routinely say it wasn't labour costs that were the issue in how well the company was doing, or why jobs were going to mexico.

GM has been organized since before the war. All of a sudden it's unions that are bringing it down?

But again, i don't want to get in the way of an internet rant.

 

[Ed007Toronto]

How can any company maintain that market share when the competition triples?

GM was the number one car company in the world in the 1960's by a large margin. They had the money and the brands. Meanwhile Japanese cars were considered a joke. How is it possible then, that today, Toyota could any day now become the largest and most profitable car company in the world. GM management made huge errors along the way that's how.

IBM was the largest computer company in the 1960's. After many years of extreme competetion they still are. It can be done.

 

[Antiloop33rpm]

I agree with Ed on this one. GM has largely failed because it has not offered vehicles that the market wants. Unquestioned brand loyalty often seems to be all that is keeping them afloat. Their cars are mediocre or OK, they are not the cheapest, they are not prestigous, and the fact that most of their vehicles are really not very attractive, and in some cases, downright ugly really doesnt help them either. They are just one of many car companies in an ever growing global field and if they want to compete, they need to pull their act together.

And even if GM was able to get all the concessions it wanted with the Unions and somehow break a profit at the expense of its employees, it wouldnt make much of a difference. You would destroy moral at the company, and it still doesnt solve the problem of GM creating crappy cars which people dont seem to want to buy.

 

[Copper1212]

For the price the Corvette just might be the best car in the world.

 

[shawnmicallef]

AND many of those Japanese companies operate plants in North America organized by the same union.

 

[blixa442]

Isn't Toyota union-free?

 

[billy corgan19982]

^

In Canada they are, I don't know about the states.