GM, Ford Losses Total $1.1-Billion in Second Quarter
The two biggest U.S. auto producers, General Motors Corp. and Ford Motor Co., said Thursday that they managed to slow their financial hemorrhaging in the second quarter but still lost a combined $1.1 billion.
Leaders of both companies voiced little hope for a robust recovery, and Wall Street expects auto losses to continue through the current quarter. GM and Ford are given virtually no chance of profitability for the year.
However, the results and current sales trends suggested to some that the worst is over. John Casesa, auto analyst at Wertheim Schroder & Co. in New York, said, “I feel we’re out of the woods at this point.”
GM said it lost $785 million, or $1.44 a common share, in the April-June quarter, a dramatic swing from a year-earlier profit of $900 million, or $1.32 a share. The red ink came on an 8% drop in sales to $31.3 billion.
Ford reported a loss of $324 million, or 68 cents a share, versus a profit of $771 million, or $1.67 a share, in the same period of 1990. Sales dropped 16% to $23.8 billion.
Both auto makers blamed slow motor vehicle sales in the United States, which analysts said drove production too low to support the enormous fixed costs that the two companies bear.
Striking as they were, the losses were toward the small end of the range forecast by the investment community as the firms showed progress in slashing costs while sales of cars and trucks began to improve.
And the deficit was barely half that of the first quarter, the U.S. auto industry’s worst ever, when the full brunt of the recession and Persian Gulf hostilities was felt even by Japanese-based car makers. GM and Ford lost $2 billion in that period.
Earnings at GM, Ford and Chrysler Corp. began to vanish in the fourth quarter of last year as a collapse in consumer confidence tipped the nation into recession and caused auto sales to tumble.
The effect on Detroit was magnified by competition from U.S.-built cars with Japanese nameplates that held a bigger share of the smaller auto sales pie and a sales battle that led to price cuts of about $1,000 per car.
Over the past month or so, automobile sales may have bottomed out and begun to recover, although the sales pace remains weak by historical standards. There was sales slippage in mid-July from preceding weeks.
Top U.S. auto executives, seeking help from Washington in the form of relaxing industry regulations and protecting the domestic industry from Japan, have been consistently bearish about the outlook.
“We don’t expect the economy to come back in a rocket-ship manner,” said David McCammon, vice president for finance at Ford, at a news conference announcing the company’s results.
But some observers believe that the U.S. industry could recover quickly as a result of cost-cutting efforts, including numerous plant closings by GM and a heavy schedule of new-car introductions over the next several months.
“If there’s a strong recovery, the first quarter next year could be gangbusters,” said analyst Casesa. “But to achieve their political aims of slowing the Japanese advance, they don’t want to sound like they’re going to be making a lot of money.”
The losses at GM and Ford were narrowed by generally strong results at their non-automotive subsidiaries.
GM Earnings (in millions of dollars) 1990: $900.1 1991: -$784.5
Ford Earnings (in millions of dollars) 1990: $770.7 1991: -$323.5
Quarters ended June 30
Source: Company reports
