GM Stock Drops 6% on News of $130M Loss

[Ming]

GM Stock Drops 6% on News of $130M Loss
Oct 15, 2004

DETROIT -- General Motors Corp. lost $130 million in the third quarter -- a “frankly disappointing” earnings report, conceded chairman Rick Wagoner, which results from intense competition leading to deep price cuts.

The earnings report sent GM’s stock price tumbling down 6% to close at $38.84. ($38.95 EOB Friday)

For only the second time in a decade, GM said its North America operations lost money due to lower production volumes. Losses also increased in GM’s Europe operations and demand weakened in Asia Pacific.

Still, GM reported a net profit of $440 million, or 78 cents a share, for the third quarter compared to $425 million, or 79 cents a share in the 2003’s third quarter. Analysts pointed out GM had fewer shares outstanding in 2003 and its 2004 results fell nearly 20 cents a share below consensus estimates.

According to today’s edition of The New York Times, “Analysts also noted that the earnings were increased by $250 million, or 44 cents a share, because GM is reducing its product liability reserves based on a review of its methodology, making the operating results appear even weaker. Darren Kimball of Lehman Brothers said in a note to investors that earnings without the decrease in reserves would be only 34 cents a share - "a very sizable disappointment.’”

Explained GM’s CEO, "Competition in the automotive business around the globe remains intense, and we are seeing negative pricing in most major markets. Even though we increased market share in all four regions, our automotive earnings in the third quarter reflect these challenging market conditions, and were frankly disappointing,” Wagoner said.

The automaker needs to "move faster in addressing some tough cost challenges like health care in the United States and our overcapacity and high cost footprint in Europe, where we announced major restructuring actions earlier today,” he continued. “Our business strategy remains sound and on track: introduce great cars and trucks, stay aggressive in the market, strive for industry-leading cost competitiveness and quality, and generate cash. But we've got to move more quickly in addressing these challenging, chronic structural-cost issues," Wagoner emphasized.

Profits at General Motors Acceptance Corp. continued to be very strong, the company noted, and GM gained market share in all four regions of the world in the third quarter, with global market share rising to 15.5% from 15.1% in the year-ago period.

GM North America reported a loss of $22 million in the third quarter of 2004, compared with earnings of $128 million in the third quarter of 2003. Performance was primarily driven by lower production volumes and unfavorable product mix and pricing, partially offset by lower material costs and the reduction of approximately $250 million after-tax in the reserve set aside for product-liability matters.

In addition, health-care costs in the United States continue to increase at an excessive rate and are a growing burden on GM's financial results, the company said.

"These continuing large increases in health-care costs put GM, and many other U.S. businesses, at a significant disadvantage," Wagoner said . "Clearly, the current situation is not sustainable. All of us -- government, business, the health-care industry, labor and health-care consumers -- need to work together to find solutions that ensure U.S. competitiveness in today's global economy."

GM's market share in North America rose to 28.5% in the third quarter of 2004, from 28.2% in the year-earlier period. In the United States, GM finished the third quarter with strong sales, posting a 20% increase for the month of September. That led to a reduction in dealer inventories of 230,000 units during the quarter to 1.137 million cars and trucks, the company said.

Wagoner said GM’s “product renaissance,” including this month’s introduction of the Chevrolet Cobalt made at its Lordstown Complex, will enable to automaker to replace, in four years, “more than 90% of our portfolio in North America on a volume basis. Through the remainder of this year,” he continued, “we have important product introductions with the all-new Pontiac G6, the Buick LaCrosse, the Cadillac STS, the Chevrolet Cobalt, and the Opel/Vauxhall Astra GTC in Europe.

GM Europe reported a loss of $236 million in the third quarter of 2004, compared with a loss of $152 million in the year-ago quarter. "The pricing environment in Europe has deteriorated significantly this year, and growth in some of our largest markets remains weak," Wagoner noted. "In light of these factors, we need to move more aggressively to significantly reduce our cost structure in Europe, especially manufacturing and engineering."

Full Article Here: http://www.business-journal.com/GMSt...ps130MLoss.asp

[stewacide]

GM needs to rethink their whole strategy. I can't believe they GAINED marketshare given the state of their lineup: no doubt the effect of incentives and other profit-killer measures.

Ford is cutting fleet sales ~20% next year and is paring back incentives on new models as well. GM should take notice: http://************/5jyg9

[mbukukanyau]

The Korean Chevy, can help GM in Europe, what they will need is to Push the Cobalt as a premium brand in Urope and attach a $ Banger Diesel Turbo...

But, the Cobalt better be well equiped for Europe, complete with Buick's Quite Tuning, and a more upscale interior. Then UAW can keep their Jobs, and Europe can send some of our $$ back to us

[surferdude00711]

I own GM stock

[ibechip]

Wow that sure does put an interesting spin on things.

[FoMoCo Fan]

Let the GM fans bash Ford for losing market share to Chevy and Toyota all they want. GM's example shows quite clearly that their path is NOT a good way to run a company.

[Ming]

I agree with the above post with the exception of #8. The new vehicle interiors are a huge step up from the outgoing 2005 Venture, shown in the photo above.

GM's biggest problem, IMHO, is that they spend a smaller percentage of money towards R&D of new vehicles, and throw gobs of money at incentives and other marketing.

In effect, GM becomes a "marketing company", not a company with excellence in automobiles as its main focus.

But be prepared to add the Pontiac Solstice to the list of "world class" cars - I think it will be a source of pride, even if it isn't the traditional cheap RWD V8 that GM enthusiasts clamor for.

[barcodedorganic]

Originally Posted by Ming

I agree with the above post with the exception of #8. The new vehicle interiors are a huge step up from the outgoing 2005 Venture, shown in the photo above.

GM's biggest problem, IMHO, is that they spend a smaller percentage of money towards R&D of new vehicles, and throw gobs of money at incentives and other marketing.

In effect, GM becomes a "marketing company", not a company with excellence in automobiles as its main focus.

But be prepared to add the Pontiac Solstice to the list of "world class" cars - I think it will be a source of pride, even if it isn't the traditional cheap RWD V8 that GM enthusiasts clamor for.

the solstice isn't even out yet and while it looks promising HARDLY looks world class it's going to have the same cheap feeling interior as the rest of the new pontiacs

i agree GM has to much over head in management and incentives and to little to throw at a new car...that it's hurting the company as a whole...but that's what happens when you've got a very few people who actually give a damn or put all their focus in to one brand...neglecting that theres twelve other identities and entities with in GM

[Swahili]

Funny since another thread on this site was talking about a 75 cent or so gain on shares for the 3rd quarter.

[AdmiralViscen]

Swahili, hush.

What is that interior in the first post? The Cobalt? Looks like a '92 Cavalier to me.

[oachalon]

That would be the chevrolet venture interior.

[AdmiralViscen]

Thank God.

[MCGARRETT]

Global Market Share increased from 15.1 to 15.5

GM North American Market Share increased 28.2 to 28.5.

The Corporation still posted a net profit of 440 Million Dollars, higher than the same period in 2003.

Only the 2nd time in the past decade that GM has posted a loss.

GM's "Can do no wrong" European operations seem to be sucking alot of cash out of the bottom line, losing almost 100 million more than 2003!

GM has abandoned being a player in the Full-Sized truck market. A serious player would have not allowed both Nissan and Toyota to launch a new product unchallenged.

It must be tough to see the computer screen with your head up your a$$.

Chevrolet probably sells more 1500 extended cab trucks than Toyota and Nissan sell trucks combined.

Or did I miss some sort of news flash about Toyota or Nissan selling more trucks than Chevrolet, nevermind GM as a whole?

Or perhaps you forgot that Chevrolet has the best selling half ton pick up in the US?

What should GM have done? Plant bombs in Toyota and Nissan truck factories?

Of course....because Toyota and Nissan offer...

A 2500?
A 3500?
A dually?
A diesel?
A regular cab low priced work truck?
The choice of 4 V8's and one V6?



Ladies and Gentlemen......welcome to post 666

[lio45]

MCGARRETT, selling a lot of product does not automatically mean that the product in question is "good" or is in the same league as its competition.

Most obvious example: Cavalier still one of Chevy's best-sellers.

If we apply your reasoning, then GM is a "strong player" in the sub-compact car segment with its current Cavalier entry. No need to comment.

[marinerbc]

Originally Posted by lio45

MCGARRETT, selling a lot of product does not automatically mean that the product in question is "good" or is in the same league as its competition.

Most obvious example: Cavalier still one of Chevy's best-sellers.

If we apply your reasoning, then GM is a "strong player" in the sub-compact car segment with its current Cavalier entry. No need to comment.

If the Cavalier is so very bad, then why anybody in their right mind part with hard earned $$$ to buy one? Wouldn't they be better off with a superior Import instead, even if the Import was priced higher?

Or perhaps the Cavalier is what some people want, or what they can afford, and they buy it for transporation, not as an enthusiast's car. The marketplace most often decides what is good, and what is bad. The Edsel was a Ford Fairlane, a good car, but it was killed by perception and a different looking grille. The marketplace deemed it "bad", even though it was no worse than other Fords of that era.

Market share is a good thing, at least right now.