GM Reports $286-Million Loss, Much Worse Than Expected

General Motors Corp. continued its financial skid Wednesday as the world’s largest automaker missed Wall Street’s earnings expectations by a wide margin and posted its third straight quarterly loss.

GM posted a second-quarter loss of $286 million, or 51 cents a share, contrasted with net income of $1.38 billion, or $2.42, a year ago.

On average, analysts had forecast a second-quarter profit of 3 cents a share.

GM’s revenue fell 1.5% to $48.5 billion from $49.3 billion last year.

Dragging GM down was its miserable performance in North America, where the maker of Chevrolet, Cadillac, Pontiac and other well-known brands suffered an operating loss of $1.2 billion after earning $355 million in 2004.

“They lost twice as much as I thought they were going to in North America,” said analyst David Healy of Burnham Securities. Healy said he would probably widen his full-year GM loss estimate from $3.44 a share, already one of the biggest loss forecasts on Wall Street.

“To use that old cliche, I think the light at the end of the tunnel is the train coming the other way,” said Healy, who sees little upside for the automaker and expects a larger loss in 2006.

GM blamed the second-quarter loss on lower production -- down 142,000 vehicles from a year ago -- as the company faced bloated inventories and sluggish sales of trucks and sport utility vehicles.

The automaker cut its vehicle production in North America by about 10% in the second quarter and is sticking with plans for a 9% cut this quarter. GM’s Chief Financial Officer John Devine said lower production was the chief reason for the loss in North America; even when plants are idle, the company still pays union workers’ wages.

Rising healthcare costs and low profit margins on vehicle fleet sales were also a drag on earnings. In June, GM extended its employee discount plan to all customers to jump-start sales. Although the program boosted its U.S. sales by 41% for the month, it added little to the bottom line.

“They have cleaned out inventories, but that has come at a price,” said Brett Hoselton, an analyst with KeyBanc Capital in Cleveland.

GM Chief Executive Rick Wagoner acknowledged that the company’s North American “financial performance continued to be very disappointing.” It “reemphasizes the need for us to significantly improve our cost structure in all major areas -- material costs, productivity, capacity utilization and especially healthcare.”

The automaker has 1.1 million employees, retirees and dependents covered by its medical plans. GM’s healthcare costs are estimated at about $1,500 per vehicle and the company is attempting to win concessions on medical costs from the United Auto Workers union.

There were some pluses in the second quarter, Wagoner said.

GM Europe earned $37 million, contrasted with a loss of $45 million a year earlier, as the company restructured and reduced costs, giving it the first profitable quarter in five years in Europe.

Also bolstering its performance was General Motors Acceptance Corp., GM’s finance arm. GMAC reported net income of $816 million, down slightly from $846 million a year ago.

But like crosstown rival Ford Motor Co., GM has been hit hard by a shift this year in consumers’ buying habits, resulting in a significant slowdown in sales of mid- and full-sized SUVs, their most profitable models.

Rising prices at the pump are keeping the pressure on SUV sales. “People will wonder why they have these things when they fill up for $60,” Healy said.

He predicted that U.S. buyers would continue to move toward traditional cars and so-called crossover vehicles like the Ford Freestyle instead of buying such big rides as Chevy’s Tahoe and Suburban.

GM shares fell 25 cents Wednesday to $36.58. The stock has fallen 9% this year.

*

Times wire services were used in compiling this report.