Video: GM's road ahead

updated 4/19/2005 12:41:04 PM ET 2005-04-19T16:41:04

General Motors Corp., the world’s largest automaker, said Tuesday it lost $1.1 billion in the first quarter, clobbered by rising health care costs, lukewarm response to some new models and special charges. The loss at its worldwide automotive operations more than doubled to $1.3 billion, most of it in North America.

It was GM’s steepest quarterly deficit since the first quarter of 1992, when it reported a $21 billion loss primarily because of changes in accounting procedures for retiree health care costs.

The January-March result amounted to a loss of $1.95 per share, compared with earnings of $1.3 billion, or $2.25 a share, in the year-ago quarter, when the company benefited handsomely from its finance arm and improved business in Asia.

GM said its revenue fell 4.3 percent to $45.8 billion from $47.8 billion a year ago.

Excluding special charges, GM said first-quarter earnings amounted to a loss of $839 million, or $1.48 a share, compared with net income of $1.2 billion, or $2.12 a share, in the first quarter of 2004.

The most-recent result was in line with Wall Street expectations for a loss of $1.49 per share, according to Thomson Financial.

Detroit-based GM warned investors in March that its first-quarter earnings would be below previous estimates of break-even or better. It has said it expects income of $1 to $2 per share for the full year, down from a previous guidance of $4 to $5.

GM sales in the United States, its largest and most competitive market, sank 4 percent for the first three months of 2005 from a year ago. For the same period, its U.S. market share slipped to 25.6 percent from roughly 27 percent, according research firm to Autodata Corp.

It shares have plunged in recent weeks to levels not seen in a decade or more.

The $1.3 billion loss from GM’s global automotive business compared with earnings of $561 million in the year-ago quarter. In North America, GM said it lost $1.3 billion versus a profit of $401 million in the first quarter of 2004.

“While most of our business units exceeded expectations, the results at GM North America were clearly disappointing,” said GM chairman and chief executive Rick Wagoner, who last month took over daily responsibility of the automaker’s struggling North American division.

“On the cost side of our business we continue to make progress in most key activities, but we need to accelerate our efforts on the challenging U.S. health care situation,” Wagoner said.

GM did not provide a tally for health care expenses in the quarter but has said it expects its full-year tab for medical expenses to approach $6 billion.

The company said its market share in North America was 25.2 percent in the first quarter, down from 26.3 percent a year ago.

Asian automakers such as Toyota Motor Corp., Nissan Motor Co. and Hyundai Motor Co. continue to make U.S. market share gains with new products at the expense of GM and Ford Motor Co., the nation’s No. 2 automaker.

GM’s GMAC finance arm, which has contributed heavily to profits in recent quarters, earned $728 million in the quarter, down from $764 million in the year-ago quarter. The last time GM’s automotive earnings outpaced those at GMAC was in the fourth quarter of 2002.

GM Europe posted a loss of $103 million in the first quarter, an improvement from a loss of $116 million a year ago. GM Asia Pacific earned $60 million in the first quarter, compared with earnings of $275 million in the year-ago quarter.

GM Latin America/Africa/Middle East reported earnings of $46 million in the first quarter, up from $1 million in the first quarter of 2004.

The company has said U.S. health care costs continue to grow at an excessive rate and hamper profitability. GM spent $5.2 billion last year to cover 1.1 million salaried and hourly employees, retirees and family members. GM has said the amount could grow to $5.8 billion this year.

GM expects to get little relief from the United Auto Workers union, which said last week it won’t reopen its contract to negotiate lower costs. The union said it will do what it can within the four-year contract, which expires in 2007, to help GM lower costs.

“In our view, the deterioration in GM’s financial condition is not yet serious enough to scare the rank-and-file at the union,” Merrill Lynch analyst John Casesa said in a research note.

Ford, GM’s crosstown rival, also has been hurt by high health care and materials costs and earlier this month lowered its profit forecast for 2005. Ford is expected to announce further production cuts when it releases first-quarter earnings results Wednesday.

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