Video: GM slams on the brakes

updated 3/16/2005 4:59:44 PM ET 2005-03-16T21:59:44

General Motors Corp., the world’s biggest automaker, slashed its earnings projections Wednesday for the first quarter and the full year, citing lower North American sales and production, an inability to raise prices and higher expenses for items such as health care. Its share price tumbled to its lowest level in more than a year in morning trading.

GM said it expects a first-quarter loss of about $1.50 a share, compared with a previous target of break-even or better. It expects income of $1 to $2 per share for the full year, down from its previous guidance of $4 to $5. GM is scheduled to report first-quarter results Jan. 19.

Its shares tumbled $4.17, or 12.4 percent, to $29.55 in morning trading on the New York Stock Exchange, trading below its lowest closing level of $33.69 for the past 52 weeks.

The automaker, whose U.S. market share has dwindled in the face of gains by Asian rivals, said its finance arm, GMAC, as well as its other sales regions, were on track to meet 2005 income targets.

But production cuts in North America in the first and second quarters of this year, coupled with extremely competitive pricing, forced GM to sharply revise its earnings forecast. North America is the automaker’s largest market.

“GM North America is, simply put, our 800-pound gorilla, and today’s announcement really shows how important it is we get this business right,” GM chairman and chief executive Rick Wagoner said in a conference call with Wall Street analysts and automotive journalists.

GM’s profit fell 37 percent in the fourth quarter, and the automaker had said it expected a rough start this year.

Still, Wagoner acknowledged the company “obviously underran our share and sales targets” for January and February. GM’s U.S. sales were off 6.2 percent in the first two months of 2005, contributing to already inflated inventories and prompting the production cuts.

GM’s previous first-quarter guidance was based on North American production volumes of 1.5 million vehicles. Since then, production schedules have been cut by about 70,000 units.

The company also attributed the lowered guidance to a more competitive pricing environment and a more car-based vehicle mix. Much of GM’s product focus in the past year or so has been on its car lineup, which generates lower profits than trucks and sport utility vehicles. As well, GM’s truck lineup is in the last year of its product life cycle, and the company has had to increase incentives on many of the aging models to attract buyers.

GM last week announced a new round of incentives designed to move slow-selling vehicles off dealer lots.

John Devine, GM’s chief financial officer, said the pricing environment means the company must seek ways to cut costs.

“While we’ve made good progress in reducing costs over the last several years, the projected loss in North America reinforces our need to do much more, particularly in the area of health care,” he said.

GM said it was encouraged by the “building momentum” of some recently introduced vehicles, including the Chevrolet Equinox, Pontiac G6, Buick LaCrosse and Chevrolet Cobalt, and by the product launches scheduled for this year.

“Great cars and trucks are the key to success in this business and so remain our top priority,” Wagoner said.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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