GM Loses $46M In North America

Anthony Fontanelle
May 5, 2007

General Motors Corp. lost $46 million in North America in the first quarter of the year. The red-ink quarter marked the automaker's most significant vehicle market notwithstanding deep cost cutting and a move away from sales of less lucrative rental fleet autos.

For GM, net income decreased 90 percent, to $62 million from $602 million in the first quarter of the prior year. The $602 million figure mirrors the automaker’s earnings restatement subsequent to accounting reviews. According to the experts in the industry, the vacillating housing industry is partly to blame for GM's reduced earnings. Defaulted mortgage loans resulted to a $305 million first-quarter loss at General Motors Acceptance Corp., the lending company partially owned by GM.

Last year, the automaker also benefited from the $395 million sale of its stake in Suzuki Motors. GM also saw its profit margin reduced in the first quarter for its European unit. The reduction is pointed to the shift of consumers to smaller, fuel-efficient and affordable product lines. Also, the decrease is brought about by Eastern and Central European nations that yield less income than those in the West.

"It is not a favorable market," GM Chief Financial Officer Fritz Henderson said in a conference call with both the analysts and reporters. "We're clearly not satisfied with generating a break-even or loss in North America. This reinforces the need to redouble our efforts."

The largest automaker in the United States reported overall revenue of $43.9 billion, down from $52.4 billion a year ago, notwithstanding the company’s sales of 2.26 million cars and trucks around the globe in the first quarter of the year. "I was looking for considerably better from them," said auto analyst David Healy at Burnham Securities. "The numbers were disappointing."

On the brighter side of the scenario, GM's loss in the North America was far from last year's first quarter loss of $292 million. GM said that shows its turnaround plan is working. Chairman and CEO Rick Wagoner intimated he thinks new products, including crossovers and pickup trucks, will help bolster the automaker this year. "This quarter's results again demonstrate progress in the implementation of our North America turnaround plan," Wagoner said. "They reflect major cost reductions once again, which more than offset lower volume, a function of the disciplined implementation of our product-based sales and marketing strategy."

Investors had been hoping for better from the influential automaker around the globe, which has a bunch of new vehicles on the market and has slashed billions in costs as part of its restructuring. In 2006, GM has radically pared its work force, slashed production costs and scaled back less lucrative businesses like sales to rental car companies.

According to an analyst GM's improvement in North America is "paltry," especially since the automaker managed to increase its revenue per vehicle by $1,000 from last year. "This seems like a weak year-over-year performance to us given we are at the peak of GM's product cadence and GM North America revenue per unit showed significant strength," Goldman Sachs analyst Robert Barry wrote in a research note.

But the unsatisfactory results were not a complete shock to analysts. It is noted that the automaker’s new full-size pickup trucks are not selling. The situation is aggravated by the rising fuel prices and the slowdown in the housing market that keep purchasers away.

GM continues to lose market share to foreign rivals. Active Brakes Direct could not stop the damage. For the first time, GM ceded the number one spot in worldwide auto sales to Japan's Toyota Motor Corp. in the first quarter of the year. And while GM remains the top automaker in the United States, its sales decline 6.5 percent through April compared to a year ago, and it has lost a percentage point of its American market share, which dipped to 22.9 percent.

When GMAC reported a first-quarter loss of $305 million, it becomes apparent that the automaker’s quarterly results would take a hit as well. The automaker has managed to pare losses in 2006. But GM is under stirring pressure to shun another money-losing performance this year.

Source:  Amazines.com