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Industry Giant Falling Behind: GM Reports $1.1 Billion Loss

By Greg Schneider
Washington Post Staff Writer
Wednesday, April 20, 2005; Page A01

General Motors said yesterday that it lost $1.1 billion during the first three months of the year, as poor sales and rampant health care costs hammered the world's biggest automaker. Once the premier symbol of American industrial might, GM is staggering under the same pressures that have weakened other industries such as steel and the airlines.

A generation ago, half of all the vehicles Americans bought each year were made by GM; today it's just over a quarter. While past downturns in GM's business coincided with bigger problems in the U.S. auto market, the current problems come during the hottest five years of auto sales in history, raising the question of whether the glory days are gone for good.



GM expanded market share in China, where GM Asia Pacific President Troy Clarke spoke yesterday. It didn't do as well in North America. (Aly Song -- Reuters)

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"The industry is shifting. The old rules are gone, the new global thing is in. The offshore -- and read that as Asian -- companies are in hot pursuit of the domestic brands, and they are succeeding at it," said Gerald C. Meyers, an adjunct business professor at the University of Michigan and former head of American Motors.

It is an all-too-familiar trap for big American companies. Boeing has watched Europe's Airbus fly past it to become the world's leading plane builder, and IBM struggled to grasp the era of personal computers before selling that line of business to a Chinese company. Now Detroit's auto industry is trying to flog a few more miles out of old business models while nimbler competitors seize the day, said Peter Morici, professor of business at the University of Maryland.

The marketplace is changing faster than the companies are, he said. GM has resisted jumping into the market for gas-electric hybrid vehicles, for instance, even as Toyota's Prius has become a huge hit. And GM chief executive G. Richard Wagoner Jr. continues to insist the company's sales will get better next year with a new line of large pickups and sport-utility vehicles -- even as gas prices climb and public taste is turning against larger trucks.

"In a lot of ways, GM is grappling with just about the whole panoply of challenges that face all of American enterprise," Morici said.

That means costs -- for labor and management, for health care, for pensions -- that far outstrip those of overseas rivals, he said. GM's loss of $1.1 billion ($1.95 per share) was a steep drop from the $1.21 billion ($2.12) in profit the company posted for the corresponding quarter a year earlier. This year's loss included a few one-time expenses related to restructuring in Europe and job attrition programs, but even excluding those the company lost $839 million.

Auto companies control a vast supply chain stretching from raw materials through component suppliers to retail products, touching every layer of the U.S. economy. GM's problems stem from mismanaging that chain, Morici said. It is similar to the airline industry, where a few old stalwarts can't keep up with more efficiently run rivals.

Just as discount airlines make more money on cheap fares, Asian car companies get higher profits on vehicles that consumers perceive as having better value, said George Hoffer, an economist and auto industry expert at Virginia Commonwealth University in Richmond.

It is not that the economy is hurting GM's sales, because Americans are continuing to buy cars on a near-record pace. Consumers just don't feel compelled to buy what GM is offering.

In what Hoffer took to be an extraordinary admission that its brands no longer command respect from consumers, GM dumped long-standing nameplates when it rolled out a new slate of cars this year. The Chevrolet Cavalier became the Cobalt, the Venture became the Uplander, the Pontiac Grand Am became the G6 and the Buick Regal became the Lacrosse.

"With the Japanese companies, when they introduce a new model they keep the old name, so they can extol the virtues of the product and people know where it fits," Hoffer said. "Who knows what the G6 is or where it fits in the line? Who knows what an Uplander is?"

Sales of those new products have been disappointing, and the North American market that GM once dominated is now the primary source of its troubles. "While most of our business units exceeded expectations, the results at GM North America were clearly disappointing," Wagoner said yesterday in a statement announcing the first-quarter loss.

Revenue fell to $45.77 billion, from $47.83 billion a year ago, partly because GM has been cutting back on production to help reduce costs. Wagoner, who recently took personal control over U.S. market operations, pledged to be more aggressive in promoting new products and in cutting costs.

GM had warned last month that its numbers were going to be worse than expected, and yesterday's results were in line with that. But because the company's fortunes have become so uncertain, GM said yesterday that it won't make projections for earnings for the rest of the year.

The major credit-rating agencies have signaled that they could drop GM's bonds one notch to junk status later this year, and they have put rival Ford on notice as well.

Ford's 1Q Profit Dips, May Have 2Q Loss

36 minutes ago Business - AP


By DEE-ANN DURBIN, AP Auto Writer

DEARBORN, Mich. - Ford Motor Co., the nation's second biggest automaker, said Wednesday its earnings fell 38.5 percent to $1.2 billion in the first quarter as automotive profits fell sharply. The results still beat Wall Street expectations, but Ford said it may have a loss before special items in the second quarter.


AP Photo

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Ford chairman and CEO Bill Ford told analysts the company is considering selling its car rental agency Hertz Corp. and said the automaker is talking to union leaders about ways to reduce health-care spending.


Ford Motor shares rose more than 2 percent in morning trading.


Earnings for the January-March period amounted to 60 cents a share, compared with net income of $1.95 billion, or 94 cents a share, in the first quarter of 2004.


Excluding special items, first-quarter earnings were $1.26 billion, or 62 cents a share, compared with $1.98 billion, or 96 cents a share, a year ago. Wall Street analysts surveyed by Thomson Financial had expected earnings of 39 cents per share in the latest period.


Dearborn-based Ford said last week it anticipated beating its own earnings projection of 25 cents to 35 cents per share in the first quarter.


Revenue in the quarter rose to $45.1 billion from $44.7 billion a year ago.


CEO Bill Ford credited Ford's three-year-old turnaround bid for the profitable quarter. He said the company plans to accelerate investments in Asia and other growing markets and push ahead on hybrids and other more fuel-efficient vehicles.


Bill Ford also said the company is considering selling Hertz Corp., which has been a wholly owned subsidiary of Ford since 1994. Hertz earned $33 million this quarter versus a $7 million loss a year ago.


"We're looking at all the options," Ford said in a conference call with analysts and automotive journalists. "We haven't decided what the best route to go is."


Bill Ford noted the company, like General Motors Corp., is talking to the United Auto Workers union about ways to reduce health-care spending, which cost the company $200 million more in the first quarter than a year ago. He wouldn't say anything more specific about those discussions.


"We're very proud of our progress, but we're extremely aware of the challenges we face," Ford said.


The company said before special items, its second-quarter earnings could range from break-even to a loss of 15 cents a share. Chief financial officer Don Leclair said the company will cut second-quarter production to 905,000 vehicles, 3.7 percent lower than its previously announced plan to produce 940,000 vehicles.


Leclair said the cut was due in part to Ford's loss of U.S. market share, which fell nearly a full percentage point to 17.8 percent in the first quarter. He said the company also was hurt by higher gas prices, which shifted consumers away from the company's highly profitable sport utility vehicles.


Ford shares rose 6 cents to $9.34 in late morning trading on the New York Stock Exchange. Its share have traded as low as $9.14 and has high as $16.48 in the past year.


Although the picture was brighter at Ford than at larger rival GM, which announced a $1.1 billion first-quarter loss Tuesday, Ford reduced its full-year earnings guidance earlier this month by a third to $1.25 to $1.50 per share and maintained that guidance Wednesday.


Ford's U.S. sales were down 4 percent for the first three months of this year. The automaker has enjoyed modest success of its car sales, which are up 5 percent from the year-ago quarter, but truck sales have fallen off 7.9 percent.





Ford's worldwide automotive sector reported a pretax profit of $579 million in the first quarter, excluding special items, down sharply from $1.25 billion a year ago. Worldwide automotive sales for the quarter fell 4 percent to just above 1.7 million vehicles.

Ford's pretax profit from its North American automotive business was $663 million, excluding special items such as charges related to its fuel cell technology business and parts supplier Visteon Corp. That was down from $1.3 billion a year ago.

Despite fierce pricing competition in the North American market, Ford's net revenue per vehicle was $23,059 in the first quarter, up from $22,628 last year. That compares to net revenue of $18,396 per vehicle at GM.

Ford's redesigned Mustang has enjoyed considerable buzz and already has seen sales increase by 17 percent so far this year. But the company's other new entries, including the Five Hundred sedan and Freestyle crossover, have had lackluster sales.

Ford also is selling far fewer of its most profitable sport utility vehicles. Sales of Ford's largest SUVs — the Excursion, Expedition and Explorer — all have fallen by more than 24 percent so far this year, according to Autodata Corp.

Ford Europe reported a pretax profit of $59 million, up from $5 million last year. The improvement largely reflected higher volumes and ongoing cost reductions, Ford said.

In the Asia-Pacific and Africa regions, Ford reported a pretax profit of $43 million versus $28 million last year. Ford said that was partially due to the sale of its 5.1 percent stake in Mahindra & Mahindra Ltd. back to the Indian company.

Ford's Premier Automotive Group — which includes the Jaguar, Volvo, Land Rover and Aston Martin brands — swung to a pretax loss of $55 million in the first quarter after posting a profit of $33 million in the year-ago period. Ford attributed the loss in part to unfavorable currency exchange rates. Also, Jaguar sales were off 21 percent in the first three months of the year, according to Autodata.

Ford's financing arm, Ford Motor Credit Co., posted quarterly income of $710 million, up from $688 million a year ago. On a pretax basis, Ford Motor Credit earned $1.1 billion, unchanged from a year ago. The company said the improved performance was partially offset by a decline in volume and higher borrowing costs.

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