GM loses billions in fourth quarter


Published: Friday, January 27, 2006 at 6:01 a.m.
Last Modified: Thursday, January 26, 2006 at 9:07 p.m.

Facts

AT A GLANCE: What's next?

  • GM has announced a restructuring plan that will eliminate 30,000 jobs and 12 facilities by 2008. A health care pact with the United Auto Workers expected to begin this year will lower costs by $3 billion. But GM may have to bail out Delphi Corp. workers in a deal that GM says could cost between $3.6 billion and $12 billion.

  • DETROIT - General Motors Corp., which is planning big job cuts and plant closings as it fights to avoid bankruptcy, said Thursday it lost $4.8 billion in the fourth quarter and $8.6 billion in all of 2005, dragged down by losses and charges in its North American division.
    It was the fifth-straight quarterly loss for the world's largest automaker and the worst annual loss since 1992. GM's North American operations alone posted adjusted losses of $1.5 billion for the quarter and $5.6 billion for the full year, as unit sales fell 3 percent in North America in 2005.
    The dismal results were far worse than Wall Street expected. GM's stock price, which had already fallen about 36 percent since July, slumped another 80 cents, or 3.4 percent, to close at $23.05 on the New York Stock Exchange.
    GM Chairman and CEO Rick Wagoner said 2005 "was one of the most difficult years in GM's history."
    "Two significant fundamental weaknesses in our North American operations were fully exposed - our huge legacy cost burden and our inability to adjust structural costs in line with falling revenue," Wagoner said in a statement.
    GM's latest loss compares to a loss of $99 million in the October-December period of 2004.
    It amounts to $8.45 per share for the quarter, compared with a loss of 18 cents per share in the fourth quarter of 2004.
    Revenue was $51.2 billion for the quarter and $192.6 billion for the full year, both down just slightly from 2004.
    Excluding special items, GM said it lost $1.2 billion, or $2.09 per share, in the latest quarter, compared to adjusted earnings of $726 million, or $1.28 per share, in the fourth quarter of 2004.
    Special items included one-time restructuring costs of $1.3 billion in North America and a $2.3 billion charge associated with benefits at Delphi Corp., GM's former parts division, which filed for bankruptcy last fall.
    GM said it expects to spend between $3.6 billion and $12 billion on benefits promised to Delphi workers, and estimates its total liability will be at the low end of that range.
    Himanshu Patel, an auto analyst with JPMorgan Chase, said the specific amount set aside for Delphi indicates GM might be close to an agreement with Delphi and the United Auto Workers on its liabilities.
    "A $3.6 billion liability is probably better than the market's worst fears," Patel wrote in a note to investors.
    Excluding items for the entire year, the company reported a loss of $3.4 billion, or $5.99 per share. Wall Street analysts were expecting a loss of 16 cents per share in the fourth quarter and $4.19 per share for the year, according to a survey by Thomson Financial.
    Wagoner said the company is moving forward with its turnaround plans, including a restructuring that will cut 30,000 jobs and shutter 12 facilities by 2008 and a plan to cut structural costs by $4 billion this year, largely through a health-care agreement with the United Auto Workers and manufacturing improvements.
    GM sold 9.2 million vehicles worldwide in 2005, the second-largest volume in the company's history. The automaker also set sales records in Asia, Latin America, Africa and the Middle East, and sales also were up a modest 1.3 percent in Europe. But North American losses overwhelmed those gains, and GM's worldwide market share was down slightly, to 14.2 percent from 14.4 percent in 2004.
    GM's financial arm, General Motors Acceptance Corp., earned $2.8 billion in 2005, down 3 percent from record earnings in 2004.
    Wagoner said GMAC's 2005 results were solid considering that GMAC's debt was lowered to "junk" status in the spring, making it harder for the division to borrow money. GM is considering the sale of a controlling interest in GMAC this year, which would shore up the division's credit rating but hurt GM's profits. The automaker collected a dividend of $2.5 billion from GMAC in 2005.
    GM Chief Financial Officer Frederick "Fritz" Henderson said GMAC is prepared to go forward whether or not a sale is negotiated.
    "We are confident we will be able to finance and support our vehicle sales in 2006, one way or another," Henderson said in a conference call with analysts and reporters.
    GM got a boost Wednesday when billionaire investor Kirk Kerkorian said in a federal filing that he reacquired 12 million shares of GM stock he sold in December for tax reasons. Kerkorian spent more than $250 million to boost his stake, which now stands at nearly 10 percent.
    But the company got little encouragement from President Bush. In an interview with The Wall Street Journal published Thursday, Bush said he hadn't been approached about a bailout for GM or Ford Motor Co. but might not support one if he was.
    "I think it's very important for the market to function," Bush said. He said companies need to manufacture "a product that's relevant" and that his administration has discussed new fuel technologies with the nation's top two automakers.
    Wagoner has said in the past that the automaker isn't seeking a bailout.
    GM's results come three days after Ford announced a profit of $2 billion for 2005. But Ford also struggled in its home market, losing $1.6 billion in North America, and announced a plan to cut 30,000 jobs and close 14 facilities by 2012.
    Summary Box: GM's earnings plummet in 2005 With BC-Earns-GM, and BC-Earns-GM-Glance By The Associated Press
  • WHAT HAPPENED: General Motors Corp. reports a 2005 annual loss of $8.6 billion, its biggest loss since 1992.
  • WHY IT HAPPENED: GM's profits have been dragged down by falling U.S. sales and rising health care and materials costs. GM's U.S. sales were down 4 percent in 2005 despite heavy use of costly incentives.
    WHAT'S NEXT: GM has announced a restructuring plan that will eliminate 30,000 jobs and 12 facilities by 2008. A health care pact with the United Auto Workers expected to begin this year will lower costs by $3 billion. But GM may have to bail out Delphi Corp. workers in a deal that GM says could cost between $3.6 billion and $12 billion.
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