Chrysler Posts Loss; More GM Plants May Shut : Autos: The No. 3 car maker ended the quarter with $214 million in red ink. Analysts say GM could write off $1 billion to close 11 facilities, including Van Nuys, at least temporarily.
Stepping up a drumbeat of sobering economic news from the automobile industry, Chrysler Corp. reported a $214-million quarterly loss Monday while General Motors Corp. laid plans for broad-based plant closings affecting tens of thousands of workers.
Chrysler’s heavy loss was actually smaller than expected, but the red ink underscored the auto maker’s vulnerability to the current economic climate and to sales pressure from both Japanese and U.S.-based competitors.
The Chrysler loss, though, could seem small by comparison to GM’s third-quarter bottom line if the biggest U.S. auto maker takes the huge writeoff against earnings Wednesday that some analysts are expecting.
The auto giant summoned analysts to a New York meeting to hear what a spokesman called “significant” news shortly before it is to report its three-month financial results.
GM wouldn’t elaborate, but some analysts believe that it will set aside up to $1 billion to cover the costs of permanently closing four assembly plants. The plants--in Michigan, Missouri, Massachusetts and Georgia--have been “temporarily” closed for many months. They previously employed about 10,000 workers.
“I believe they will finally acknowledge reality,” said Anne Knight, analyst at Paine Webber.
Meanwhile, trade publications reported that GM has boosted to 11 the number of car and truck assembly plants it will close in November and December for up to a month because of poor sales. Some 35,000 workers will be temporarily laid off.
As part of the temporary closings, GM’s plant in Van Nuys is to shut down for two weeks starting Nov. 5.
The cutbacks mean GM will build about 154,000 fewer vehicles than planned in the quarter, a drop of 15%.
The downbeat reports from Detroit are only partly due to the recent negative economic developments in the wake of the Persian Gulf crisis. Overall car sales have been slumping for nearly two years, and the domestic auto makers have been getting a shrinking share of those sales.
But the downturn in consumer confidence and leap in the price of gasoline have delayed an expected sales recovery and cut directly into sales of trucks. This has worsened a major overcapacity problem at GM, whose decade-long loss in market share has left it with too many plants.
And the truck falloff has been especially damaging to Chrysler’s all-important Jeep and minivan sales.
Though overall U.S. car sales have held up better than expected since the Aug. 2 invasion of Kuwait, Chrysler sold 21% fewer vehicles in the July-September period than a year earlier. Revenue tumbled 15% to $6.5 billion.
Chrysler blamed its woes partly on the high cost of rebates--upward of $1,200 per vehicle--and on the production loss of some 56,000 minivans during factory changes to build 1991 models. Such production hiccups during new-model changeover normally make the third quarter the worst for auto firms.
“We didn’t anticipate the Gulf crisis, the federal budget fiasco or the continued escalation in the incentive wars,” said Chairman Lee A. Iacocca.
However, Chrysler’s earnings were some 25% higher than forecast by analysts at Shearson Lehman Bros., Barclays de Zoete Wedd and other investment houses. The company’s finance subsidiary reported record earnings, though that performance was overwhelmed by Chrysler’s sagging car and truck sales. Chrysler has lost nearly 2 percentage points of market share in the past year.
Chrysler issued the bleak earnings report in the midst of its contract negotiations with the United Auto Workers. The union said Monday that it would continue bargaining at least until Thursday’s scheduled meeting of a worker council. The auto company says it can’t afford to match the contract terms the UAW recently obtained from GM and Ford Motor Co.
David Healy, an analyst at Barclays, expects GM’s third-quarter earnings to drop to $377 million from the year-earlier $517 million, not counting any writeoffs due to plant closings. Analyst Knight thinks the writeoff will be in the $1-billion range, putting GM deeply into the red.
The four plants expected to be formally shut down have, until now, been categorized as “temporarily” closed because of language in GM’s old union contract that ostensibly prohibited plant closings. Most GM observers believe that the company wants to close additional plants as well, and it is unclear whether the UAW-GM contract signed in September has any meaningful obstacles to more shutdowns.
High on the list of vulnerable plants is the Van Nuys assembly plant, which is to lose the Chevrolet Camaro and Pontiac Firebird to a Canadian plant in 1992 and hasn’t been assigned anything else to build.
GM Plant Closures General Motors will temporarily shut down 11 car and truck plants for one to four weeks beginning Nov. 5. The Flint, Mich., truck plant closed Monday for four weeks and will eliminate a shift indefinitely on Jan. 2 About 37,000 workers will be affected at the 12 factories. GM is expected to announce Wednesday that four other plants, mothballed for several months, are being permanently closed. Those plants employed 10,000 workers. Temporary closures Van Nuys Fairfax Oklahoma City Flint Pontiac Scarborough Fort Wayne Bowling Green Lordstown Wilmington Tarrytown Permanent closures Leeds Pontiac Framingham Lakewood Sources: Automobile News, Ward’s Automotive Report Chrysler: In The Red Again Chrysler Corp. annual profit/loss. . . billions of dollars and third-quater earnings millions of dollars ‘89: $331 million ‘90: ($214 million)
