You know things are bad when a $3.3-billion loss is cause for Wall Street celebration.
That was the story for General Motors Corp. on Wednesday, after it said it lost that massive sum in the first quarter, a huge negative swing from the year-earlier period. But it was apparently encouraging enough to drive up GM shares $2, or 9.4%, to $23.20, their biggest daily gain in more than six months.
Much of the loss was attributable to two large, one-time charges associated with the mortgage crisis and a bankrupt supplier. But even without those, Detroit-based GM lost $350 million in the period, compared with a $62-million profit a year earlier. Still, Wall Street had expected a loss of about $900 million excluding the charges and seemed to breathe a sigh of relief over the results.
For the quarter, GM lost $5.74 a share on revenue of $42.7 billion, compared with a first-quarter 2007 net gain of $62 million, or 11 cents, on revenue of $43.4 billion.
Despite the stock market's warm embrace, GM's results pointed to many areas of concern. A continuing strike at parts supplier American Axle & Manufacturing Inc. cost it $800 million for the quarter, affecting output at 30 plants and contributing to a decision this week to reduce output of some pickups and sport utility vehicles by 138,000.
Last week, GM announced a small decline in the number of vehicles sold worldwide in the first quarter even as rival Toyota Motor Corp. said its sales rose 2.7%, pushing the Japanese automaker into the lead for the year. Today, GM is expected to report continuing skids in North America when it releases its April sales results.
"April feels a lot like what we've seen in the first quarter," when GM sales declined by 11% in the U.S., President Fritz Henderson said, adding that GM would run the business "assuming a tougher environment in the second quarter in North America."
For the first quarter, the automaker's North American losses totaled $812 million, compared with $208 million in red ink a year earlier.
As the difficulties on the home front piled up, GM showed promise overseas. Income from outside North America was up more than 20%, with particular strength coming from Brazil, Russia, India and China, countries where sales are rapidly increasing.
"The emerging markets have become the corporate equivalent of Xanax" for GM and other carmakers, said Shelly Lombard, an analyst with Gimme Credit, adding that the growth relieved "investor anxiety about weakness in North America."
For other analysts, anxiety about North America was at least partially quelled by the company's aggressive attempts to confront its problems here. Although GM lost $276 million on the quarter from its 49% stake in GMAC, the car and home lender that has been hit hard by its large sub-prime mortgage portfolio, it also chose to write down the valuation of that holding by $1.45 billion, a one-time charge that was by far the biggest hit on its earnings.
GM also said it was reducing its forecast for U.S. auto sales for all automakers this year. It had been anticipating slightly more than 16 million vehicles to be sold in the U.S., but GM said it was now expecting a total in the high 15-million-unit range. Last year, 16.1 million cars and light trucks were sold in the country.
"Encouraging for us . . . is GM's management recognition of a tougher [North American] operating environment," Lehman Bros. analyst Brian Johnson said in a research note. He and most analysts, however, predict a large operating loss for the automaker for the year.
GM also included a loss of $731 million to reflect its support of bankrupt parts supplier Delphi Corp. Asked about the American Axle strike, which the company said was of growing concern, Henderson said GM had no plans to interfere.
"It would be good to have American Axle and the UAW actually reach an agreement without our direct involvement," he said.