GM Reports $286 Million 2nd-Qtr Loss on Rising Costs (Update1)
GM Reports $286 Million 2nd-Qtr Loss on Rising Costs
July 20 (Bloomberg) -- General Motors Corp. had a loss of $286 million in the second quarter as a plan that spurred sales by giving employee discounts to all U.S. buyers in June couldn't offset rising health-care costs and restructuring costs in Europe.
The net loss at Detroit-based GM, the world's largest automaker, was 51 cents a share compared with net income of $1.38 billion, or $2.42 a share, for the same period a year earlier, GM said in a statement today. It was the first time GM has lost money three consecutive quarters since a 10-quarter stretch from 1990 to 1992.
``Things are not going well with GM at this point in time. They have cleaned out inventories, but that has come at a price,'' said Brett Hoselton, an analyst with KeyBanc Capital in Cleveland, in an interview. ``Most people thought things would be bad, but probably not this bad in this quarter. This report is worse than expected.''
GM Chief Executive Rick Wagoner is trying to improve profits with new models and cost cuts after GM lost money the previous two quarters, including a $1.1 billion loss for the three months ending March 31. The employee discount handed GM a 47 percent boost in June U.S. sales and kept Toyota Motor Corp., the world's second-largest automaker, from gaining U.S. market share for the first time since January 2003.
The average estimate for analysts surveyed by Thomson Financial was for a profit of 3 cents a share, excluding some items. On that basis, GM had a loss of 56 cents a share.
Automotive Loss
GM's automotive operations had a loss of $948 million in the second quarter, and its finance unit had a profit of $816 million. GM has made more money from auto loans than from building and selling cars and trucks since 2002. The automaker said it had $20.2 billion in cash, including $1 billion taken from a retirement health-care fund, compared with $19.8 billion at the end of March.
GM's June sale prompted U.S. rivals Ford Motor Co. and DaimlerChrysler AG's Chrysler to match the promotions for this month. GM resorted to the incentives on June 1 after the first two months of the quarter saw sales fall, debt ratings reduced to junk, corporate raider Kirk Kerkorian raise his stake, and Wagoner abandon an already reduced profit forecast for the year.
Shares Gain
Shares of General Motors climbed 16 percent in the second quarter, outpacing the gain of less than 1 percent in the Standard & Poor's 500 Index. The shares, which are still down 16 percent in the past year, rose 32 cents to $36.83 yesterday in New York Stock Exchange composite trading.
Wagoner, 52, has said he plans to reduce manufacturing and health-care costs while trying to lure buyers back to its 89 models of cars and trucks. Wagoner said last month he wants to eliminate 25,000 U.S. manufacturing jobs by 2008 and will work with unions to decrease health-care spending.
Sales in June rebounded from a decline of 6.7 percent through May as U.S. market share plunged to the lowest since 1925.
GM sales rose 8.5 percent in the second quarter on the strength of June incentives, above the 4 percent average for the U.S. industry. Toyota, which didn't offer an employee discount, had a 12 percent gain in the quarter. Nissan Motor Corp. gained 18 percent, the most of any automaker, with incentives less than half those at GM.
Beating Forecasts
General Motors's earnings have exceeded analysts' expectations by 1.6 percent on average in the past six quarters. The company is rated ``buy'' by five analysts, ``hold'' by another five and ``sell'' by eight, according to recommendations tracked by Bloomberg.
Wagoner said he plans to lower prices so that GM needs fewer incentives to give buyers affordable monthly payments. He also is banking on new or coming models, such as the HHR sport-utility vehicle and the Pontiac Solstice sports car, to be more popular with buyers.
The June U.S. sales boost helped to obscure the May 4 announcement that Kerkorian would buy as much as 8.8 percent of the automaker's stock as a ``passive'' investment. Kerkorian ended up getting only about 7.2 percent as some investors decided his $31 a share offer was too low.
Cut to Junk
GM's borrowing costs rose during the quarter as Standard & Poor's and Moody's Investors Service cut about $196 billion in debt to the level of high-risk, high-yield bonds because of concerns about increased North American competition. GM reduced North American production 12 percent in the first quarter and 10 percent in the second. It plans to trim another 9 percent this quarter.
The automaker hasn't had a 2005 profit forecast since April 19, when Wagoner abandoned an already reduced forecast for a profit of as much as $2 a share, excluding some items, because of uncertainty about health care. GM didn't give a net income forecast when it was giving a forecast. GM has been unsuccessful so far in getting union cost concessions on health care.
To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net; Barbara Powell in Southfield at bpowell4@bloomberg.net
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