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GM lifts guidance
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January 10, 2002: 12:50 p.m. ET
Despite falling prices, No. 1 automaker says 4Q, '02 EPS should top estimates.
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NEW YORK (CNN/Money) - General Motors Corp. raised its guidance for its fourth-quarter profit Thursday and said it expects to keep its share of the automobile market in 2002 despite a drop-off in sales and prices.
The No. 1 U.S. automaker said it expects to earn about 60 cents a share in the quarter ended Dec. 31, compared with its previous guidance of about 50 cents a share. GM Chief Financial Officer John Devine said earnings would have been about 70 cents without Argentina's recent devaluation of the peso, and he warned that the devaluation might still lower GM fourth-quarter earnings to 50 cents a share. GM has two assembly plants in Argentina.
Analysts surveyed by earnings tracker First Call expected GM (GM: down $0.17 to $50.07, Research, Estimates) to earn 54 cents a share.
Detroit-based GM also said it expects to expand its share of the global auto market in 2002 and that its earnings-per-share target is $3.00 for the year, excluding results from the Hughes Electronics unit that the company is in the process of selling to EchoStar Communications Corp.
Analysts surveyed by First Call expect GM to earn $1.93 a share in 2002, although that estimate includes losses from its Hughes unit. Researchers at First Call could not say by how much Hughes' losses reduce analysts' estimates.
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CNNfn's David Haffenreffer reports on GM's 2002 earnings expectations.
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Devine also confirmed comments by GM executives Tuesday that it expects to cut about 10 percent, or nearly 6,000, of its 57,600 salaried and contract workers in North America as well as 10 percent of its European non-hourly work force, through attrition and an early retirement plan. While GM Vice Chairman Robert Lutz characterized the move to reporters Tuesday as part of a continual streamlining effort at the company, Devine said the weaker car sales market is also a motivation for the move.
"The inability to raise prices requires us to take even tougher measures to reduce costs," said Devine.
A GM spokesman told CNN/Money that hourly workers will not be affected by the work force reduction.
Competitor Ford Motor Co. (F: down $1.02 to $15.29, Research, Estimates), the No. 2 automaker, is expected this week to announce job cuts amounting to about 20 percent of its work force. A Wall Street Journal report Thursday said Ford's restructuring plans -- including about 10,000 job cuts and the shutdown of two or more assembly plants -- could result in $4 billion in charges.
Ford and Chrysler Group, the North American unit of No. 3 automaker DaimlerChrysler (DCX: down $1.31 to $41.90, Research, Estimates), have already told investors to expect losses in their fourth-quarter operations, and while analysts are looking for a return to profitability there in 2002, there are new concerns over those automakers' outlook for this year.
Chrysler Group CEO Dieter Zetsche told analysts at the North American International Auto Show in Detroit Wednesday that while his unit still hopes to meet its profit target for 2002, the goal will be difficult because of an anticipated drop in sales and high customer incentive levels in the North American market.
Ford has promised further guidance when it releases earnings later this month. But its executives also told reporters this week that profitability in the face of high incentives will be difficult.
GM started the incentive war in the U.S. industry by offering zero-interest financing in the face of a sharp drop in auto sales during the two weeks immediately following the Sept. 11 terrorist attack. Ford, Chrysler and some overseas manufacturers followed GM's lead. While that program has expired, GM is now offering $2,002 cash back on most new car purchases.
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Industry analysts have estimated that U.S. sales of cars and light trucks, which include sport/utility vehicles, pickups and minivans, are expected to fall about 10 percent in 2002 to about 15.5 million. But while GM's official forecasts match that target, its top executives told reporters at the auto show this week that they believe industry sales this year should top those forecasts.
Devine said that competitive pressure is expected to lower net car pricing by about 1 percent this year.
"Overall, 2002 will be a very challenging year for the industry," Devine said.
All of the Big Three automakers' stocks were lower in trading late Thursday morning.
Adding to Ford's troubles, UBS Warburg cut its investment rating on Ford stock to "reduce" from "hold," according to a Reuters report Thursday. 
Reuters contributed to this report
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