GM Has $338-Million Loss; Some Plants to Close

General Motors on Wednesday reported its biggest operating loss since the recession of five years ago and confirmed that it plans to close several assembly and stamping plants around the country by the end of 1987 in order to cut costs and improve profit margins.

GM, which said it will notify workers at the targeted plants within the next few weeks, announced a third-quarter operating loss of $338.5 million, compared to a loss of $20.9 million in the same period of 1985. The company declined to identify plants being considered for closure and refused to comment on speculation that GM’s Van Nuys assembly plant might be among them.

Analysts had widely anticipated the loss as a result of GM’s heavy spending on marketing and capital projects, along with a sharp drop in worldwide car and truck sales. It was GM’s largest operating deficit since the third quarter of 1981, when, in the midst of the auto industry’s worst slump since the Depression, the auto maker posted a loss of $959.5 million.

Thanks to increased earnings at GM’s aerospace, computer services and finance subsidiaries, however, the auto maker was still able to report a net profit for the period. Still, even on a net basis, its income fell nearly 49% to $263.7 million from 1985’s level of $513.5 million.

While net income fell, sales rose about 1.3%, indicating that the squeeze on GM’s profit margins caused by its heavy spending on sales incentives and new manufacturing technology continued to plague GM during the quarter. GM (including its non-automotive subsidiaries) posted a pretax profit margin of 5.7% in the quarter, down from 6.4% for the same period last year. At the same time, total vehicle sales fell 15.3% worldwide, contributing to the steady erosion in GM’s market share.

“I think there were three things that led to the operating loss--a big year-to-year decline in unit volume, higher sales incentive costs than GM had last year and the rising manufacturing costs and related decline in unit margins that has been developing for the last two or three years,” said David Healy, automotive analyst with Drexel Burnham Lambert. “Add all those up, and you get a number with a bracket around it.”

Healy added that GM’s sales incentives cost the auto maker about $750 million during the quarter.

While GM is struggling, Ford Motor is likely to show an increase in net earnings for the quarter when it reports today. Healy said Ford probably earned about $500 million in the period, up nearly 60% from $313.1 million last year. Chrysler, meanwhile, is expected to report earnings of about $225 million, down from last year’s record of $316.2 million for the period.

In a joint statement clearly aimed at reassuring Wall Street that GM management is scrambling to improve earnings for future quarters, GM Chairman Roger B. Smith and President F. James McDonald said the company is “moving aggressively” to cut costs by shutting plants, restructuring its Australian unit, selling off its controversial South African subsidiary and spinning off its troubled heavy truck business into a joint venture to be run by Volvo.

Production Cutbacks

GM also indicated that it plans sizable cutbacks in its automotive production schedules over the coming months to avoid a repeat of last summer, when the company’s dealers were swamped with unsold cars and GM was forced to introduce 2.9% discount financing in order to reduce its bloated inventories. On Tuesday, GM Executive Vice President Lloyd E. Reuss had told The Times that “at least three” assembly plants will be closed in coming months.

In Wednesday’s statement, Smith and McDonald added that GM’s corporate restructuring, which divided its North American automotive operations into two car groups in 1984, is just now taking hold, allowing the company to further pare its employment levels.

But while such moves are sure to please the financial community, they are sending shivers through the ranks of GM’s work force and the leadership of the United Auto Workers. Donald Ephlin, a UAW vice president and director of its GM department, said the UAW believes that “better management of existing resources, rather than efforts to reduce those resources through (subcontracting) or layoffs, is the best approach to rebuilding GM’s strength and market share.”