A dismal performance in North America leads to more questions.
by Joseph Szczesny


General Motors Corp. put a period on a dismal first quarter by reporting a loss of $1.1 billion.

It was the largest quarterly loss since 1992, when a flood of red ink led to the ouster of then-GM Chairman Robert Stempel. The new report, even though it was spot on the guidance GM gave last month, only added to the anxiety about GM's core automotive business.

Meanwhile, GM's cash balance dropped by $3.5 billion as the company's cash flow turned sharply negative in the quarter, while rising interest rates added another $900 million to the company's costs during the period, according to information in the company's financial statement. GM also backed off its earlier guidance that it could still earn $1 to $2 per share this year. Instead the company issued a terse statement noting that, "Given the uncertainty affecting key elements of our financial forecast, such as 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."

The company's automotive operations in North America and Europe each posted significant losses. Last year, GM earned $561 million from its automotive operations in the first quarter. GM's critical North American operations accounted for most of the losses, as it dropped $1.3 billion in the first quarter of 2005. It had posted a $401 million profit a year ago. Company's executive blamed the $1.7-billion swing in North America on a combination of factors including slower sales, declining production volumes, a tougher pricing environment and the hefty health-care burden that has added nearly $1 billion to the company's cost base.

Meanwhile, the automaker's market share in North America also declined sharply during the first quarter, dropping to 25.2 percent from 26.3 percent in the same period a year ago.

Team in recoil

"While most of our business units exceeded expectations, the results at GM North America were clearly disappointing," said GM chairman and chief executive officer Rick Wagoner. "We have well thought-out plans to address GMNA's poor performance, starting with aggressive product introductions this year, value-focused marketing initiatives, and further reductions in our cost structure, where the greatest need is to address the challenging health-care cost situation," Wagoner said.

John Devine, GM's chief financial officer, said GM has plans to boost the company's revenues, which fell 4.3 percent, but declined to predict how fast the company might recover from the nose-dive that has left its credit rating in tatters.

Devine said the company and the United Auto Workers continue to discuss changes in healthcare but declined to say exactly how the company was going to obtain more relief from the union.

"We don't negotiate in the newspapers," he said.

Ron Gettelfinger, the president of the United Auto Workers, said last week the UAW would not re-open its current contract with GM. The union, however, has agreed to discuss changes to existing healthcare plans within the framework of the existing agreement.

Wagoner said that GM had taken other steps to reduce costs. Dealer inventory levels are down by nearly 100,000 units from the year-ago period and March sales had improved and more reductions are expected in the second quarter. GM officials, however, also conceded the company's sales will be down in April.

The breakdown

Overall, GM lost $839 million, or $1.48 per diluted share in the first quarter, excluding special items and a tax-rate adjustment. It had earned net income of $1.2 billion, or $2.12 per share, in the first quarter of 2004. Revenue also dropped 4.3 percent to $45.8 billion in the first quarter. Consolidated net income for the first quarter of 2005, including special items, was a loss of $1.1 billion, or $1.95 per share.

GM Europe posted a loss of $103 million in the first quarter of 2005, an improvement from the $116 million loss in the year-ago quarter as the company's market share increased to highest level since 1999. GM Asia Pacific reported net income of $60 million but the unit's profits were down substantially from the $275 million it earned in the same period last year.

GM Latin America/Africa/Mid-East earned $46 million in the first quarter of 2005, an improvement from year-ago earnings of $1 million. "GMLAAM reported its fifth consecutive quarter of profitability, with several countries reporting record sales volumes and market share," Wagoner said. "We're particularly pleased with our performance in Argentina, Venezuela and South Africa, where we reported double-digit sales gains," Wagoner said.

General Motors Acceptance Corp. earned $728 million in the first quarter of 2005, down slightly from the $764 million it earned in the same period a year ago. "GMAC delivered solid results in a very challenging environment," Wagoner said. Mortgage operations earned $385 million in the first quarter of 2005, up from $231 million in the comparable period last year. GMAC's insurance operations also reported net income of $95 million in the first quarter of 2005, up from $91 million in the first quarter of 2004.

source : thecarconnection.com

 

There is NO good news in here for GM at all. Every business unit is losing money, even the perennial profit-maker GMAC. Apparently, when no one is buying your cars, no one is financing through you either. Even the razor-thin profit in South America is a pittance.

WHAT WILL IT TAKE TO WAKE THESE LOSERS UP?! I am speaking of the GM board of directors and senior executives. Drastic change is needed. I'm talking about things like scrapping the UAW, razing current product lines, and basically building the company over from scratch. They've got the cash reserves to do that NOW, if they have the guts. Otherwise the sucking chest wound will simply destroy them, leading to their marginalization in the market and eventual total demise. What a case study in hubris, ignorance of the facts, and inability to face market realities!

 

they can blame it on health care costs, but it costs every other company the same amount for health care (unless GM got a REALLY crap deal from the UAW). you lose $1.1 Billion when you make crap products taht no one wants to buy. also, they lack a think called "originality". they make 10 cars with different badges and different prices and call it a day. they dont make them any different.

 

So you are blaming the UAW for GM's poor performance???

Please tell me how the UAW caused GM to lose over a billion......

Josh

 

GM's like that family member on drugs for me. No matter how much they keep screwing up you just wanna keep loving them but this time may be the time when I kick them outta my house for getting caught smoking crack in my bathroom.

Ok, maybe that went too far, but I've grown up a GM guy, we've always had at least 1, usually 2 GM products in our garage as long as I've been alive so this really really hurts. The ol' man is putting down on a new Z06 in the next few weeks but if it weren't that, a V series Cadillac, a GTO, or a truck I would make him stay away from GM at all costs.

James

 

GM's problem is actually pretty simple. All this stuff that you keep hearing in the press about health care costs, the UAW, changing markets, inefficient assembly lines, etc..... is not touching on the one REAL issue with GM...and the primary reason their cars are not selling............cheapness.

Low-quality plastics everywhere. Flimsy-feeling stalks and controls. Trim that is loosely attached and falls off. Paint with more orange peel than a Florida grove. Squeaks. Rattles. Push-rod engines that in some cases date back to the 50's and 60's.

Granted...there has been some attempt recently to rectify this...especially on the new Buick Lacrosse, Pontiac G6, and some new Cadillacs, but by and large GM's problems center around the poor fit-and-finish of their vehicles. Granted, there are some die-hard GM fans (especially Chevy truck owners and many of the senior citizens in Buicks and Cadillacs) who will not switch no matter what, but the truth is that until GM designs and builds a car like Toyota and Lexus do, they simply will not sell like Toyotas.
And Hyundai and Kia have already proven that high quality can be delivered for a low or reasonable price.

 

Poor buggers! The General is in trouble I think!

 

Im not blaming JACK on the UAW. GM is blaming the UAW. they said in the USA today article that it was do in large part to the high costs of health insurance. somewhere in the line of $300+ million last year in just health care. this year they expect it to be well over $500+ million. they are trying to renegotiate the deal with the UAW as their current contract expires in 2007. the UAW says they are trying to negotiate lower cost health care, but i dont EVER see that happening.

 

Is it just me, or isn't most or ALL their product line pretty new or at least updated? All their brands I swear, they have been on a product onslaught, right? But the things just are not selling?

I am afraid that even though the cars are better, well so has the competitons. GM waited TOO DAMN LONG to revive things, and people simply don't care anymore for GM. Sad. And even with some improved quality and other things, they simply cannot shake off the cheap and bad quality stigma.

I mean honestly, people don't really buy a GM product because it is better. They buy it because it is cheaper and they can get killer financing rates.

 

As usual, I think that both mmarshall and 1SickLex have it right on. GM's woes are due to the poor quality of their products. Granted, the union which has sucked them dry in terms of wages, short work hours, and lavishly generous retirement/health care packages doesn't help matters at all financially. But if GM had a rockin' product line that actually sold well and made money, they could survive.

This reminds me of the airline debacle we're currently going through. During the 90's, when everybody was making money hand over fist and the airlines filled seats no matter what, there was little incentive to actually provide the customer a good service or negotiate hard with the unions. Now their product still stinks, they've got the big bills from the pilots, flight attendants, mechanics, etc., and their losing money like crazy. HELLO!!??

 

And the airlines had to deal with 9-11, though, and its aftermath........... GM didn't.
And even over and above that, the 9-11 aftemath should have been a boon for GM, considering that people started to drive more instead of flying. The fact that it wasn't tells you something.

 

When is GM going to put 'styling, quality, performance' in one package?

 

Right now, the closest things to that from GM, IMO, are the Cadillac STS, STS-V, and...........even though it is not considered an enthusiast's car..............the Buick LaCrosse.

 

Stempel was an OK guy. Even with the worsening fiscal situation at that time, I can't really think of anything bad to say about him. He was really more of an engineer than a paper-pusher or administrator. Even though he lost his job and didn't last very long, he was EASILY a thousand times better than the guy he replaced.......Roger Smith. Smith was truly a moron...he messed up GM more than any person I can think of before or since. His basic philosophy was "Build the damn cars, sell 'em, quality be damned. Throw them together on the assembly line as quick as possible and get 'em out the door."