Merrill Profit Falls 75%; GM Reports Loss
General Motors Corp. on Tuesday reported a smaller-than-expected loss for the third quarter as cost cuts tempered the effects of two summer strikes and an overseas sales slump.
The world’s largest auto maker said it lost $538 million, or 87 cents a share, before a charge, in the latest quarter, down from net income of $1.07 billion, or $1.34, a year ago. Analysts were expecting a loss of 99 cents, according to the average estimate of analysts in a First Call Corp. survey.
The strikes by the United Auto Workers at two Michigan parts plants in June and July all but shut down the company’s North Americana production and cut $1.2 billion from its profit. The auto maker also lost $12 million outside North America, compared with earnings of $137 million a year ago. GM is cutting costs to boost profit as it attempts to shore up union relations.
Analysts expressed concern that GM exceeded its expectations in the third quarter simply by digging out from the strike faster than predicted rather than by improving its fundamental operations.
“At the end of the day, it’s what you earn” that counts, said Merrill Lynch & Co. analyst Nicholas Lobaccaro.
Revenue fell 17% to $34.42 billion from an adjusted $40.16 billion, reflecting the $9.5-billion spinoff of its Hughes Electronics Corp. defense business in December.
The latest earnings figures exclude a charge for the shedding of GM’s Delphi seat, light and coil-spring business. The year-ago quarter had no gains or charges.
GM’s strike-battered North American operations lost $612 million in the third quarter, down from a profit of $423 million in the year-earlier quarter. Excluding the Delphi charge and the effects of the strike, GM’s third-quarter profit fell to $697 million, or $1.02 a share, from $973 million, or $1.29 a share, in the year-earlier quarter. General Motors Acceptance Corp. earned $313 million, up from $312 million.
Increased competition forced GM to spend an average of $1,732 for each vehicle on rebates and other incentives, up from $996 in the year-earlier quarter, Lobaccaro said.
GM said it expects the average vehicle rebate to fall below $1,400 in the fourth quarter from $1,732 in the third quarter.
Higher fourth-quarter earnings have been predicted because of robust demand in Europe, where the company’s Astra small car is available in increasing numbers, and in the U.S., where production of its redesigned compact pickups is accelerating.
