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GM's Stock Dives on Anemic Earnings : Autos: The No. 1 car maker suffers another huge loss in its North American operations.

October 21, 1994|DONALD W. NAUSS | TIMES STAFF WRITER

DETROIT — General Motors Corp. reported improved but surprisingly weak earnings Thursday as it suffered another big loss in North American auto operations despite the most robust U.S. vehicle market in years.

In the three months ended Sept. 30, the nation's No. 1 auto maker earned $552 million, or 40 cents a share, compared to a loss of $113 million, or 49 cents a share, in the year-earlier period. The earnings were boosted by a one-time, $200-million tax credit.

In its key North American operations, GM lost $328 million, compared to a loss of $825 million a year ago, not including special items. However, the company, which has lost $17 billion in North America since 1990, is still likely to be profitable domestically for the full year.

GM blamed the weak North American results on slow launches of new vehicles, production limitations and two strikes.

The operating results were well below Wall Street expectations and GM shares plunged as low as $42.375 on the earnings news, but they recovered somewhat to close at $43.125, down $3.75 for the day. It was the most heavily traded issue on the New York Stock Exchange on Thursday.

"The Street reacted so negatively because of what this says about GM's long-term profitability," said David Garrity, analyst with Smith Barney Shearson in New York.

Investors are concerned that GM lost money on its core auto business even while U.S. car and truck sales were booming. Only the tax credit and good performance of GM's non-auto units allowed it to report a profit.

GM officials blame the deficit in North America on increased overtime to meet buyer demand, higher product development costs and strike-related production losses.

"We're not very happy with the third-quarter results," said Michael Losh, chief financial officer.

GM's performance pales in comparison to its competitors and comes amid the strongest car and truck market since 1988. Chrysler Corp. reported earnings of $651 million in the third quarter and Ford Motor Co. is expected to report earnings of about $900 million next week.

In the third quarter, GM lost an average of $296 on every vehicle it sold in North America. In comparison, Chrysler made about $1,000 per vehicle in the period.

In addition to slow production start-ups and excessive overtime, GM was hurt by two strikes that closed numerous assembly plants and cut production by about 40,000 vehicles. The strikes translate to about $150 million in lost profits, Losh said.

Separately, the firm's GM Hughes Electronics Corp. subsidiary reported third-quarter earnings of $244 million, a 9% gain, on a fractional rise in revenue to $3.4 billion. Operating profit jumped 29%.

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