GM loses $3.3 billion in 1Q, lowers sales outlook
DETROIT (AP) - April 30, 2008 But unlike Ford, GM faces more unknowns that could complicate
its North American turnaround and drag down strong results
overseas, including a strike at supplier American Axle, the
protracted bankruptcy case of its former parts division, Delphi
Corp., and unresolved labor talks in Canada.
GM's loss for the January-March period amounted to $5.74 per
share, reflecting $2.9 billion in one-time charges. That compares
with a profit of $62 million, or 11 cents per share, in the first
quarter of 2007.
Without the one-time charges, GM lost $350 million, or 62 cents
per share, handily beating Wall Street's expectations. On that
news, investors sent GM's shares up 9.4 percent, or $2, to close at
$23.20. Analysts surveyed by Thomson Financial had expected a loss
of $1.60 per share.
Ray Young, GM's chief financial officer, said analysts may be
underestimating the company's overseas growth. GM said revenues
rose 20 percent outside North America thanks to strong expansion in
China, Russia, Brazil and India. A record 64 percent of sales came
from outside the U.S. in the quarter.
But problems persist in GM's home market. The Detroit-based
automaker cut its industrywide U.S. sales outlook for 2008 to
between 15.3 million and 15.5 million light vehicles from 16
million at the beginning of the year, largely due to plummeting
sales of trucks and sport utility vehicles. That's still higher
than Ford Motor Co., which is forecasting 15 million sales. Young
said GM believes the second quarter will be weak but that things
will improve later in the year as lower interest rates and federal
stimulus measures kick in.
"We want to run our business conservatively. We want to be
realistic," Young said.
Some analysts say GM's biggest problem has been its failure to
plan for the weak U.S. market, where 2008 sales are expected to
drop to a 14-year low.
"In our view, GM entered this year too optimistically, thus
failing to manage its production and inventory appropriately,"
Calyon Securities analyst Mark Warnsman said in a note to
investors.
But Lehman Brothers analyst Brian Johnson said he was encouraged
by the company's decision to lower its forecast as well as its
announcement this week that it will cut production at four U.S.
truck and SUV plants, affecting 3,500 jobs. Johnson said those
moves show GM's management recognizes how tough the U.S. sales
environment has gotten.
The one-time items included a $1.45 billion charge to reflect a
change in the value of GM's 49 percent share in GMAC Financial
Services. Young said the company revalued its stake because of
losses in GMAC's residential mortgage division.
GM also took a $731 million charge to reflect liabilities at
Delphi. GM said it has taken $8.3 billion in Delphi-related charges
to date as the supplier struggles to emerge from bankruptcy
protection after two and a half years.
Ford, which reported a surprise $100 million first-quarter
profit last week, helped its former parts division Visteon Corp.
avoid bankruptcy with a 2005 bailout. It also hasn't been affected
by the two-month strike at Detroit-based American Axle and
Manufacturing Holdings Inc., which is in the midst of contentious
labor negotiations with the United Auto Workers. American Axle
spokeswoman Renee Rogers said talks were continuing Wednesday.
GM said the strike, which has affected 30 plants, cost it $800
million and 100,000 vehicles in the first quarter - although
several analysts said GM would have had to cut that production
anyway. GM President and Chief Operating Officer Fritz Henderson
said despite the losses, GM doesn't want to intervene.
"What we've tried to do is be helpful where we could be with
the UAW and American Axle, but we really do not want to be
involved," he said in a conference call.
Ford has another advantage: It already has agreed to a
preliminary labor agreement with the Canadian Auto Workers. GM and
Chrysler LLC have yet to reach theirs, but will now be pressured by
the union to accept Ford's terms.
Henderson said he doesn't measure GM's progress against other
automakers.
"I'm not going to get into the business of trying to compare us
with Ford or us with anybody else. We've got to get the business
turned around," he said. He added that all U.S. automakers will
struggle this year with high gas prices and consumers' rapid switch
to smaller, less profitable vehicles.
GM's revenue for the quarter totaled $42.7 billion, down from
$43.4 billion a year ago.
The company lost $812 million in North America, compared with a
loss of $208 million in the year-ago quarter. Its North American
market share dropped from 22.5 percent to 21.7 percent.
Jonathan Steinmetz, an analyst with Morgan Stanley, expressed
concern about GM's $3.4 billion cash burn for the quarter, and said
the company should consider cutting its dividend and raising more
capital. GM ended the quarter with $23.9 billion in cash and $7
billion in credit facilities. By comparison, Ford ended the quarter
with total liquidity of $40.6 billion.
GM sold 2.25 million vehicles worldwide in the first quarter,
down less than 1 percent from a year ago.
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