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GM Posts Loss of $4.8 Billion in Quarter

The firm caps its first unprofitable year since '92 as results miss Wall Street's low forecasts.

January 27, 2006|Roger Vincent | Times Staff Writer

General Motors Corp. said Thursday that it lost $4.8 billion in the fourth quarter, capping the company's first unprofitable year since 1992 with a performance well short of Wall Street's already low expectations.

GM's stock fell 3.4% after the world's largest auto manufacturer reported a quarterly loss of $8.45 a share, compared with a loss of $99 million, or 18 cents, in the fourth quarter of 2004. Most of the bad news came from its big North American operation, which lost $5.6 billion as plant closings and layoffs soared and GM continued to lose sales to Asian rivals.

"I thought it would be an ugly quarter, but I didn't think it would be that ugly," said auto industry analyst David Healy of Burnham Securities Inc.

For the full year, GM reported a loss of $8.6 billion, or $15.13 a share, compared with a 2004 profit of $2.8 billion, or $4.92 a share. It was the company's worst showing since a $23.5-billion loss in 1992.

Fourth-quarter revenue was flat at $51.2 billion; sales fell less than 1% to $192.6 billion for the year.

"The level of losses is very, very high," acknowledged Fritz Henderson, GM's chief financial officer, during a conference call with analysts and investors. He called the results "unacceptable."

Chief Executive Rick Wagoner called 2005 "one of the most difficult years in GM's history."

The loss was spurred in part by the company's reliance on sport utility vehicles and large pickups, which fell out of favor as gas prices rose. "GM has a product line that was designed for gasoline that was around $1.50 a gallon," said Walter McManus, director of the University of Michigan's Office for the Study of Transportation.

Last year Asian automakers, led by Toyota Motor Corp., captured a record 36.5% of the U.S. market. Meanwhile, GM's vehicle sales fell 4.4%, while Ford Motor Co.'s dropped by 4.7% last year. Both GM's and Ford's U.S. market shares are at their lowest point since the 1920s.

Wagoner has said GM will move forward with its turnaround plan, which calls for eliminating 30,000 jobs and closing 12 facilities by 2008 as it shrinks unprofitable operations and retools its vehicle lineup.

GM's fourth-quarter charges included $1.3 billion for North American plant closings, and $2.3 billion set aside for expenses related to the bankruptcy filing of Delphi Corp., GM's largest supplier and its former parts division.

"They're trying to load all the bad baggage they can into a bad year," said David Cole, director of the Center for Automotive Research in Ann Arbor, Mich. "It gives a smoother track going forward and creates a sense of urgency" among investors, managers and unions.

The disappointing results came a day after billionaire Kirk Kerkorian said he had again raised his GM stake to 9.9%, in what was seen as a sign of increased pressure on Wagoner to accelerate a turnaround.

This month Kerkorian's top aide, former Chrysler Corp. executive Jerome York, called on GM to halve its dividend to conserve cash, sell off its Saab and Hummer brands and set profitability goals and a timetable for achieving them. York said it was time for GM to get into a "crisis mode."

Kerkorian, through his Beverly Hills-based investment firm Tracinda Corp., declined to comment Thursday.

Some analysts were disappointed that GM didn't offer more details on the possible sale of a stake in its profitable finance division, General Motors Acceptance Corp., or its dividend plans.

"We thought, in light of the dismal earnings ... that the company might throw investors a symbolic bone and announce a dividend cut," wrote Shelly Lombard, a bond analyst at Gimme Credit.

Wagoner is trying to win back buyers this year with redesigned large trucks and SUVs and a Saturn gas-electric hybrid. Models such as Chevy's Silverado and Tahoe "were outdated and stale in 2005," said Michael Chung, an analyst for Edmunds.com.

Last year GM "was so focused on volume and regaining lost market share that they didn't capture what consumers wanted in terms of desirable vehicles," Chung said. "The competition did."

GM sold 9.2 million vehicles worldwide in 2005, the second-largest volume in the company's history. By contrast, Toyota produced 7.4 million vehicles in 2005 and plans to make 9.06 million this year.

GM set 2005 sales records in Asia, Latin America, Africa and the Middle East, and Chevrolet snatched the crown for the U.S.' bestselling brand from Ford, but its North American losses overwhelmed those gains.

GM and Ford have both seen their credit ratings fall to junk-bond status over concerns about their soaring healthcare and pension obligations, and uncertainty about next year's contract negotiations with the United Auto Workers.

Although GM reported its fifth unprofitable quarter in a row, it ended the year with $20.5 billion in cash and bankruptcy is not on the horizon, some analysts said.

Ramped-up production of the improved large-vehicle lineup and cost-cutting measures should keep the company afloat. "This won't be a good year," analyst Healy said. GM "will be deep in the red, but losses will be a lot smaller. They have a shot at breaking even in 2007."

Meanwhile, President Bush is not offering any encouragement to GM or Ford about turning to the federal government for a financial bailout.

"I think it's very important for the market to function," he said in an interview in the Thursday edition of the Wall Street Journal. The two automakers need to manufacture "a product that's relevant," Bush said.

GM's shares fell 80 cents to $23.05 on Thursday.

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Times wire services were used in compiling this report.

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