Ford, GM Lose $2 Billion Total in First Quarter
In what is shaping up as the worst financial quarter in history for the Big Three U.S. auto makers, General Motors Corp. and Ford Motor Co. posted quarterly losses Tuesday totaling $2 billion.
Ford said it lost a record $884 million for the first three months of the year. GM, the world’s largest auto producer, said that it lost $1.2 billion but that its net loss was lower because of an accounting change and the sale of real estate.
The top two auto makers blamed the huge, continuing decline on the recession at home and abroad and on structural changes in the domestic auto business--including the expansion of U.S. plants by Japanese auto makers--that have made it possible to build more cars than people want.
“There is just too much capacity in the U.S. market,” said David McCammon, vice president for finance at Ford. “Something’s going to have to give. Someone’s going to have to cut capacity or the margins are going to continue to be very low.”
Weighed down by low consumer confidence, the pace of U.S. car and truck sales tumbled last fall and has shown little sign of recovery since the end of the Persian Gulf War in February. Poor sales have afflicted even the more buoyant Japanese models.
April retail sales have shown a further slowdown, part of a discouraging national picture that led the Federal Reserve Bank on Tuesday to lower interest rates again. A shortage of available credit is among the problems facing new-car dealers.
Chrysler Corp., financially the frailest of the Big Three, is expected to release first-quarter results today. Its losses are expected to be smaller than Ford’s or GM’s but enough to push the industry loss beyond the dubious $2.1-billion record set in the last quarter of 1990.
GM Chairman Robert C. Stempel said the industry’s North American sales to dealers were at the lowest first-quarter level since the deeply recessionary days of the early 1980s. Ford and GM said such sales dropped 14% from a year ago.
Analysts and auto executives expressed a cautiously optimistic outlook for the beleaguered industry, guessing that sales will pick up as the U.S. economy climbs out of its recession in the third and fourth quarters. But nobody promised a profitable year for any of the Big Three.
For the first quarter, GM said a $403-million gain from the sale of the General Motors building in New York and an accounting change that resulted in a $303-million gain narrowed the company’s net loss to $376.5 million. A year earlier, GM had earned $710 million.
The No. 1 auto maker’s sales in the latest quarter fell 3% to $29.2 billion.
GM’s poor performance in the U.S. market was partly offset by record earnings in Europe, despite the recession there. Total overseas sales came to 646,000 cars and trucks, up 2.9% from the first quarter of 1990.
David Garraty, an analyst at the Nomura Research Institute in New York, said GM’s earnings were better than he had expected. “The company seems to have the resources to get through this current downturn in reasonably good shape,” Garraty said.
The stock market seemed to agree, as GM shares closed at $35.75, up $1.75 for the day on the New York Stock Exchange.
In contrast with GM, Ford’s European automotive operations faltered in the first quarter, leading to overseas losses of $208 million on top of U.S. car and truck losses of $947 million. The total automotive loss of $1.1 billion contrasted with a $315-million profit in the same period last year.
The company’s sales slipped 9.8% to $21.3 billion.
With U.S. production at just 63% of capacity for the quarter, McCammon said the recently negotiated sweetening of layoff benefits for Ford’s unionized work force was an additional financial burden.
“It was definitely a factor in first-quarter profits because we did have to pay as we go for layoffs,” McCammon said.
Ford’s poor results in the auto business were partly mitigated by its financial subsidiaries. Despite losses at its First Nationwide Financial savings and loan unit in San Francisco, earnings at The Associates and Ford Motor Credit Co. sent profits of the financial services group to a record $271 million.
Ford stock closed up 62.5 cents to $32.50 on the NYSE as executives and stock analysts expressed hope that the worst was behind the auto industry.
“Looking forward,” said Ford Chairman Harold Poling, “we believe a gradual economic recovery will begin in the second half of the year. Even with that forecast, however, it will be difficult for the company to realize a profit in 1991.”
Stempel said the recent upturn in consumer confidence would result in a faster sales pace within the year.
“Recent improvements in consumer expectations are a positive sign and should translate into increased vehicle sales later in 1991,” he said. But, he acknowledged, the “timing and rate of the expected recovery are somewhat uncertain.”
