GM, Ford Losses Total $2.1 Billion in 4th Quarter : Earnings: The two giant car makers paint a bleak picture for this year, blaming the Gulf War, the recession and competition.
General Motors Corp. and Ford Motor Co., the world’s biggest auto producers, staggered to fourth-quarter losses totaling $2.1 billion and signaled Thursday that, so far, this year looks even worse.
GM recorded its worst quarterly operating loss ever, $1.6 billion, en route to a net $2-billion loss for 1990, its worst full-year performance.
Ford said it lost $519 million in its fourth quarter but earned $860 million for the year, a 78% drop from 1989’s profit. A top executive said the company expects a “substantial loss” in the current quarter and might not be profitable for 1991.
GM and Ford, which rank first and second respectively among Fortune magazine’s 500 largest U.S. industrial corporations, blamed their troubles chiefly on the Persian Gulf War, the recession and accelerating competition in the U.S. car and truck market.
Although heavy losses had been forecast, the results at both companies were moderately worse than Wall Street had expected. And the bleak outlook sketched by GM and Ford had investment analysts slashing their 1991 financial projections.
“The extreme pessimism expressed by both confirms my belief that we’ve not seen the worst yet,” said John Casesa, auto analyst at Wertheim Schroder Inc. in New York. “I see almost no chance that either company will be profitable in ’91.”
Earlier, smaller Chrysler Corp. reported what turned out to be the Big Three’s only fourth-quarter profit. But Chrysler indicated that its slim $31 million worth of black ink has given way to heavy losses so far this year.
All the U.S.-based auto producers have suffered a falloff in sales and production that began after Iraq invaded Kuwait on Aug. 2, then accelerated this winter as war neared and finally broke out. As the recession deepened, U.S. sales of foreign-based auto makers have also tumbled.
Industry sales are now rivaling the worst of the 1980-82 downturn, but U.S. companies have less of the pie.
“We may have had a structural change in our margins during this time period,” said David McCammon, Ford vice president and treasurer.
Maryann Keller, analyst at Furman Selz Inc. in New York, says the profit picture has been worsened by a glut of late-model used cars being recycled more frequently by rental car companies. The nearly-new cars have further depressed prices by driving would-be new-car buyers into the used-car market.
GM’s $1.6-billion quarterly loss contrasts with a $700-million profit in the fourth quarter of 1989. Sales fell 4.7% to $29.9 billion.
The full-year loss of $2 billion contrasts with a 1989 profit of $4.2 billion. Sales slipped 1.8% to $124.7 billion.
The 1990 loss included a $2.1-billion charge in the third quarter to cover costs of padlocking as many as nine assembly plants. Not counting that, GM managed operating earnings of $102 million for the year.
GM’s huge fourth-quarter loss came despite record sales and $2.4 billion in profits by its overseas operations. The company’s non-automotive operations--the EDS computer services subsidiary, GM Hughes Electronics and GMAC, the finance arm--also posted record or near-record profits.
That served to underscore just how unprofitable the North American car and truck market remains for GM. Despite recent retrenchments that included plant closings, a dividend cut, major cutbacks in its work force and other steps, analyst Casesa says GM needs more drastic actions.
At Ford, the October-December loss of $519 million contrasts with year-ago earnings of $314 million. Auto-related sales slipped 1.5% to $20 billion.
For the year, Ford earned $860 million, a falloff of 78% from the $3.8 billion the company earned in 1989. Sales edged down 1.2% to $81.8 billion.
The profitability of Ford’s car business vanished in the United States last year after the operation earned $1.1 billion in 1989. But unlike the early 1980s, when money-losing domestic car and truck operations were propped up by Ford of Europe, Ford’s overseas operations have also fallen on hard times.
Ford said its overseas automotive business earned a scant $116 million last year, a $2-billion decline from 1989. Strikes and slumping sales in Great Britain, Ford’s European stronghold, drew the biggest share of the blame.
“We do have a very severe profit situation today,” McCammon said. “The cash has been going out the door at a relatively fast rate.”
Nonetheless, Ford had $6 billion in cash at year’s end, up slightly from the previous year. But the company borrowed $3.7 billion during the year, McCammon noted, “and we expect a further cash drain in the first quarter.”
McCammon said there are signs that U.S. vehicle sales have bottomed out, but added that forecasts are impossible in the midst of the war.
Analyst Casesa said Ford doesn’t need to cut costs as deeply as GM does. But each of the Big Three is having to delay or cut back spending on new vehicles, and will suffer competitively because of it, Casesa said.
McCammon said Ford is taking various steps to reduce its costs, ranging from travel cutbacks to likely layoffs of white-collar workers. But he refused to identify goals or other specifics. Analysts expect Ford to cut its common stock dividend in April.
As at GM, there will be no profit sharing or bonuses for Ford employees for 1990, McCammon said.
