General Motors Posts Loss of $1.1 Billion
General Motors Corp. on Tuesday posted a first-quarter net loss of $1.1 billion, its worst quarter in 13 years, due to disappointing sales in the crucial North American automotive market and soaring healthcare costs.
“We expected a difficult quarter,” GM Chief Financial Officer John Devine said. “Obviously that’s what we saw.”
Last month, the world’s largest automaker said it expected net income of $1 to $2 a share for the year, but Devine canceled that advisory and declined to offer financial guidance for the remainder of the year, citing a crisis in healthcare expenses and uncertainty over auto sales.
GM’s refusal to offer an earnings estimate “means they don’t have a very good handle on things,” said bond analyst Sean Egan of Philadelphia-based Egan-Jones Ratings Co. The company “certainly wouldn’t be reluctant if they thought things were going to get better.”
Other analysts, though, said GM could be holding back as part of its negotiations on healthcare costs with the United Auto Workers. Last week, the union said it had no intention of revising its current labor contract to help the automaker lower medical expenses but would do what it could within the agreement to help lower costs.
GM has warned that its U.S. healthcare costs could grow to $5.8 billion this year. Making things look as bleak as possible would help GM persuade the union to pass on some of the company’s healthcare costs to its hourly workers, analysts said.
“It is hard to see [GM] getting into the black this year,” said Burnham Securities analyst David Healy. “Some of the conditions that hit them so hard in the first quarter, health costs and their thin product mix, are continuing.”
GM’s stock hit a 13-year low Tuesday of $24.67 before closing at $26.09, down 10 cents, on the New York Stock Exchange.
The company’s first-quarter loss, equal to $1.95 a share, contrasts with a year-earlier profit of $1.28 billion, or $2.25 a share. Revenue fell 4% to $45.8 billion from $47.8 billion.
The loss is almost 30% more than the $848-million estimate provided a month ago by GM Chairman Rick Wagoner. But it includes a number of one-time expenses for a continuing restructuring in Europe and the cutting of 2,800 salaried positions in the U.S. Excluding those charges, the first-quarter loss would have been $839 million.
For the quarter, GM posted a $728-million quarterly profit from its finance unit, down from $764 million a year earlier. But losses from corporate expenses and automotive operations eradicated that.
The big problem for GM remains its sagging auto sales in North America.
The company lost $1.3 billion from its North American automotive operations in the quarter, contrasted with a profit of $561 million in the same period last year. Meanwhile, small automotive profits in Asia and Latin America were erased by losses in North America and Europe.
“The issue we’ve had in this loss is North America,” CFO Devine said.
Although healthcare costs are the company’s principal long-term concern, getting its product mix right for the competitive U.S. market is the more immediate concern, he said.
In addition, slowing sales of GM’s large sport utility vehicles -- which make up a big chunk of the company’s U.S. sales volume -- have hurt. Car sales have fallen as well, and GM slashed production of cars and trucks in the first quarter by 162,000 units, or about 10%, Devine said.
GM has been facing intense competition from Asian automakers such as Toyota Motor Corp. and Kia Motors Corp. As a result, GM’s market share in the U.S. fell to 25.6% in the quarter from about 27% a year earlier, according to Autodata Corp.
GM this month cut prices on its mid-size SUVs, such as the Chevrolet Trailblazer, to boost sales. It has also been forced to heap on rebates and other incentives. Through the first quarter, GM’s average vehicle sold at a $6,300 discount from the manufacturer’s suggested retail price, compared with an industrywide average discount of $4,500, according to automotive information service Edmunds.com.
GM is pinning a lot of its recovery hopes on redesigned large SUV and pickup trucks coming out next year.
Some analysts, however, question whether the big trucks can provide the volume needed now that rising gasoline prices seem to have taken some of the shine off the large SUV market.