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03-17-2005, 12:18 AM
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GM Cuts Outlook; Shares Fall 14 Percent

Wed Mar 16, 4:37 PM ET

By Michael Ellis

DETROIT (Reuters) - General Motors Corp. (NYSE:GM - news) on Wednesday warned its 2005 earnings will be as much as 80 percent below its prior forecast due to slumping North American auto sales, sending its shares down 14 percent to a 12-1/2-year low.

The warning from the world's largest carmaker, whose once dominant position in its key U.S. market has fallen to less than a 25 percent share on a steady loss to foreign automakers, spurred Standard & Poor's to caution that it could downgrade GM's debt to "junk" status at any time, which would likely raise its borrowing costs.

GM also said it will post a loss in the first quarter, compared with its prior forecast of breaking even or better, due to significant losses in North America.

"GM North America is, simply put, our 800-pound gorilla, and today's announcement shows how important it is that we get this business right," Chairman and Chief Executive Rick Wagoner told analysts and reporters on a conference call.

The automaker's top money-makers in the United States, full-size SUVs and pickup trucks, have been losing out to newer offerings from competitors, and new models won't arrive on the market until next year.

GM's stock sank as low as $29.00, its lowest level since October 1992, a year when GM lost $23.2 billion and nearly went bankrupt.

The shares ended down $4.71, or 14 percent, at $29.01 on the New York Stock Exchange (news - web sites) on Wednesday. GM's outlook, which would mark its worst performance since 1992, dragged down the broad market and hurt other auto stocks, with Ford Motor Co. (NYSE:F - news) losing 2.6 percent on the day.

GM said it now sees full-year earnings of about $1.00 to $2.00 per share, excluding special items, down from its previous target of $4.00 to $5.00 a share.

In 2004 GM earned $3.6 billion, or $6.40 a share, from continuing operations, including $2.9 billion from its financial services unit GMAC.

GM also said it now expects a first-quarter loss of about $1.50 per share, excluding any special items.


GM's U.S. sales tumbled more than 6 percent during the first two months this year, and its U.S. market share fell to a record low of about 24.4 percent in February despite high incentives.

David Cole, director of the Center for Automotive Research, said he expects similar difficulties for other companies in the automotive industry. "This will not be the only company where you're going to see this kind of comment," he said.

Ford, which has also lost U.S. market share this year, said on Wednesday that it expects its profit for this year to be at the lower end of its previous forecast for earnings per share of form $1.75 to $1.95, excluding any special items.

Nevertheless, S&P analyst Scott Sprinzen said: "Ford's financial performance is holding up much better than General Motors'."

When pressed by reporters, Wagoner defended his tenure since taking over as CEO in 2000. GM shares have dropped about 60 percent since then. "I think people that stick with us will be vindicated over time," he said.

Over the last four months, GM has said it will close a van plant in Baltimore, and cease production at a truck plant in New Jersey and a car assembly plant in Michigan. It has also said it would cut production of new cars and trucks in North America by more than 300,000 vehicles through the first six months of this year.


"We have to do even more on the cost side," GM Chief Financial Officer John Devine said on the conference call, citing rising health-care costs in particular.

GM, the largest private provider of health care in the United States, expects its U.S. health care costs for more than 1 million workers, retirees and their families to rise to $5.6 billion this year, up from $5.2 billion last year.

Operating cash flow this year will reverse by $4 billion, going from a projected $2 billion positive inflow to a negative $2 billion, GM said. That excludes GM's $2 billion settlement with Italian automaker Fiat and European restructuring costs.

S&P affirmed its long-term ratings on GM and General Motors Acceptance Corp. at "BBB-minus," one step above "junk" status, and their short-term "A-3" ratings.

But it said in a statement; "We now view the rating as tenuous. The rating could be lowered at any point if we came to doubt that GM was on a trajectory to improving its financial performance to more satisfactory levels in 2006 and beyond."

Fitch Ratings cut its ratings on GM and its finance arm to one step above "junk," with a negative outlook, the same level as S&P.

Last year, GM's total interest expense from its debt burden rose to $11.90 billion from $9.46 billion, as cuts in its debt rating resulted in wider bond spreads. Rising debt levels and an upward tick in U.S. interest rates added to the expense. GM and GMAC had a total outstanding debt of $301 billion at the end of last year. (Additional reporting by Reshma Kapadia, Dan Burns, Chris Sanders, Christian Plumb, Jonathan Stempel and Tom Brown)

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03-17-2005, 04:42 AM
Cost cuts? I guess they do have to find something to change, since you can get any cheaper interior wise of the car.

03-18-2005, 08:37 PM
ha, as if american cars can be made with any lesser quality, now we'll know. we've owned a range of GM cars, and the build quality is solid, but the materials are crap. what i mean by that, is the leather isnt that great, the panels dont fall off, but they are too plain. the only thing they have goin on really is cargo space and engines, and rollin on spinnazzzzzz y0000

03-18-2005, 09:11 PM
What do they expect, when the only incentive people had to buy their cars, trucks and suv's was 0% finance?

03-19-2005, 06:15 AM
I'm a firm believer in supporting American companies, but in the case of the auto industry we are just producing a substandard product.

Sure there are a handful of models I wouldn't mind owning, but overall we are way behind times

04-15-2005, 01:08 PM
with all that said, this may be a great time to buy up ford stock. They will sell a lot of the new mustangs.

04-15-2005, 07:19 PM
Maybe it is time for Detroit to build some decent cars for a change, and cut cost. How about firing all those over paid lazy auto union workers, and unimaginative executives GM is not an 800 pound gorilla, they are a freaking dinosaur. If they didn't make trucks and SUVs GM and Ford would be out of buisness. Wake up and smell the coffee. American cars are crap, with a few exceptions. GM deserves to be in the financial trouble they are in, it just should have occured years ago.