GM loses $4.8 billion in quarter
No. 1 automaker's shortfall equals $36,000 a minute as auto operations falter.
NEW YORK (CNNMoney.com) - Just when it seemed things couldn't get worse for General Motors Corp., they did, as the embattled automaker said Thursday it lost a total of $4.8 billion in just the last three months of 2005, far worse than Wall Street expectations.
GM lost $1.2 billion, or $2.09 a share, in the fourth quarter of 2005, excluding special items. Analysts surveyed by earnings tracker First Call had forecast a loss of only 16 cents in the period, with the largest loss estimate being $1.66 a share.
"There were no highlights for the fourth quarter. It was a very, very tough quarter," GM Chief Financial Officer Fritz Henderson conceded to analysts and investors in a call Thursday morning.
The net loss works out to just over $36,000 a minute during the quarter, or roughly the suggested list price of the Chevrolet Tahoe, the company's full-size SUV. Even the loss excluding special items comes to almost $9,000 a minute. It also works out to an average loss of $2,274 for every vehicle the company sold worldwide during the quarter.
Shares of Dow component GM were down about 7 percent in midday trading Thursday, after being higher in pre-market trading ahead of the report on news that financier Kirk Kerkorian had repurchased 12 million shares of GM that he sold in December in order to lock in a tax loss.
The net loss was inflated as the company took charges related to its plans to close a dozen plants and facilities, and cut 30,000 jobs from its North American auto work force. It also was hit by charges related to the Oct. 8 bankruptcy filing at its former parts unit, Delphi.
Losses may be even bigger
The problems at Delphi caused GM to warn that its fourth-quarter results are preliminary and may be revised prior to the filing of GM's 2005 annual report in mid-March due to changes, if any, to the Delphi-related accrual and completion of a previously disclosed supplier credits study.
It's also possible that some analysts may not exclude all of the special charges when they compare the stated results to estimates. Some analysts pointed out during the investor call that guaranteed pay paid to members of the United Auto Workers who are laid off is generally considered part of operating costs, not a special item.
Henderson said that given the size and the length of time of the guaranteed payments that will be made as plants are closed, the company and its auditors believed it was appropriate to treat the payments as a special charge. Henderson said the $800 million part of the charge related to those payments is an estimate, and that the actual cost to the company will depend upon negotiations with the union.
The company's loss from its North American operations came to $1.45 billion, compared with a $449 million profit from those operations a year earlier.
A weak mix of sales cost the company about $1 billion in the quarter compared to the year earlier, as the company sold far fewer of the large SUVs that are the most profitable vehicles, and sold more of the smaller cars that are not profitable. It resulted in nearly a $500 per vehicle decrease in net revenue, which accounts for the cost of sales incentives, compared with a year earlier.
"The negative surprise was how much they hemorrhaged in North America. I underestimated how much the big decline in large SUV sales would cost them," said David Healy, analyst with Burnham Securities.
The company was also hit by increased spending on health care, raw materials and advertising, which together cost the company $500 million more than in the year-earlier period. An increase in other structural costs accounted for the rest of the North American loss.
Will loss prompt change?
Healy had been forecasting a return to narrow profits for GM in 2007; now he's rethinking that projection. He said one positive of the large loss is that it may prompt GM management to take more radical steps, like ones recently recommended by Kerkorian adviser Jerry York, to slash its dividend, and cut officer and management pay as a first step towards seeking new concessions from the UAW.
But Charles Fleetham, a Michigan-based management consultant, said he's not confident about GM taking radical steps even with the loss.
"I think if the results they've had for the five previous quarters hand prompted the change, I don't have a lot of confidence this will," he said. "I think those are good ideas (from York), but given the embedded structure and union costs, I don't see how they can shrink the company to success."
Fleetham said GM's problems with car buyers' perceptions are being hurt further by financial reports such as this one, convincing people that the company must be making bad quality cars if they're losing this kind of money, or worrying some buyers that the company might not be around in three or four years when they'll need servicing on a car they buy today.
"The real problem in the short term is how do they reverse the psychology of buyers," he said. "It needs to break through the negative sterotypes that many people feel about GM products."
The company's problems with its core North American operations were countered somewhat by improved results in overseas auto units. But those auto operations together fell just short of break-even results in the quarter, excluding special items.
GM Europe trimmed its adjusted fourth quarter loss to $159 million from $345 million in the year-earlier period. Earnings excluding items from the Asia-Pacific region stayed strong at $112 million, although down from $117 million a year earlier. Auto operations elsewhere in the world earned $20 million before items, compared with $49 million a year earlier.
There were also solid, though somewhat lower earnings, at its GMAC finance unit, which had net income of $614 million, down from $683 a year earlier. Higher mortgage rates that hit its home finance unit and having to operate under the company's junk bond status affected GMAC's results.
Despite all the problems, the company's revenue was little changed in the quarter, coming in at $51.2 billion compared to $51.4 billion a year earlier.
For a look at how the woes at GM and Ford may soon be seen at Chrysler, click here.
For a look at GM's recent outlook for 2006, click here.
For a look at the call by a major investor for GM to be in a "crisis mode" click here.
For a look at more news on autos and automakers, click here.