DETROIT - General Motors Corp. (NYSE: GM) today reported net income of $440 million, or $0.78 per diluted share, in the third quarter of 2004. These results are at the low end of the range of GM's earnings guidance provided in July. In the year-ago quarter, GM reported net income of $425 million, or $0.79 per share, and earnings from continuing operations of $448 million, or $0.80 per share. Revenue rose 3 percent to $44.9 billion.
Profits at General Motors Acceptance Corp. (GMAC) continued to be very strong, compared with the prior year, but automotive results were weaker due to increased losses in Europe, lower production volumes in North America, and slower economic growth in China.
"Competition in the automotive business around the globe remains intense, and we are seeing negative pricing in most major markets," said GM Chairman and Chief Executive Officer Rick Wagoner. "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."
"These financial results highlight that we've got 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. 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."
GM Automotive Operations
GM's global-automotive business reported a loss of $130 million in the third quarter of 2004, compared with net income of $34 million in the prior-year period. Positive results at GM's Latin America/Africa/Mid-East (GMLAAM) were more than offset by losses at GM North America (GMNA) and GM Europe (GME), and lower profits at GM Asia Pacific (GMAP).
GM gained market share in all four regions of the world in the third quarter of 2004, with global market share rising to 15.5 percent from 15.1 percent in the year-ago period.
GMNA reported a loss of $22 million in the third quarter of 2004, compared with earnings of $128 million in the third quarter of 2003. GMNA's performance was primarily driven by lower production volumes and unfavorable product mix and pricing, partially offset by lower material costs and a reduction of approximately $250 million after-tax in the reserve set aside for product-liability matters. This reduction was the result of the annual analysis of product-liability reserves.
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.
"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 percent in the third quarter of 2004, from 28.2 percent in the year-earlier period. In the United States, GM finished the third quarter with strong sales, posting a 20-percent 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.
"GM continues its product renaissance," Wagoner said. "In fact, over the next four years we will replace more than 90 percent of our portfolio in North America on a volume basis. Through the remainder of this year, 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. These products, and the many that follow them, will strengthen our brands and improve our competitiveness."
GME 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 most-recent quarterly results reflect intense price competition and foreign-exchange losses. GM's market share in Europe rose to 9.6 percent in the third quarter of 2004 from 9.1 percent in the year-ago period.
"The pricing environment in Europe has deteriorated significantly this year, and growth in some of our largest markets remains weak," Wagoner said. "In light of these factors, we need to move more aggressively to significantly reduce our cost structure in Europe, especially manufacturing and engineering."
GMAP earned $101 million in the third quarter of 2004, compared with earnings of $162 million in the year-ago quarter, also reflecting lower pricing and unfavorable mix driven by the economic slowdown in China. GM's market share in the Asia Pacific region rose to 5.1 percent in the third quarter from 5.0 percent a year ago.
"The economic slowdown in China affected our financial performance there during the third quarter," Wagoner said. "However, we see this situation as temporary. We continue to expect to see significant growth in China and throughout the region in the medium and long term."
GMLAAM earned $27 million in the third quarter of 2004, a substantial improvement from the year-ago loss of $104 million, and the third consecutive quarter of profitability.
"Our strong product portfolio and excellent dealer network have led to market-share gains in South America, South Africa and the Mid-East, while improved economic conditions have led to industry sales growth of 21 percent during the quarter," Wagoner said, adding GM's market share in the GMLAAM region rose to 17.1 percent in the third quarter of 2004 from 15.6 percent a year ago.
Reflecting strong performance from GMAC's diversified business, GMAC earned $656 million in the third quarter of 2004, up from $630 million in the year-ago quarter.
Net income from financing operations totaled $259 million in the third quarter of 2004, compared with $320 million in the prior-year period. Lower credit losses and improved lease residual results were more than offset by lower net margins on stable asset levels.
Mortgage operations earned $302 million, up from $253 million in the year-ago period. Higher interest rates had a negative effect on loan production and securitization volumes but a favorable effect on net servicing revenue.
GMAC Insurance reported net income of $95 million for the third quarter of 2004, up from $57 million a year ago. Operational strength across the business unit contributed to improved net underwriting results while investment income remained stable compared with the prior year.
"GMAC once again delivered very impressive financial results, in spite of the more challenging interest rate environment," Wagoner said. "GMAC has done an excellent job diversifying its earnings base across its portfolio of global businesses, and also diversifying its funding base through new sources of liquidity both here and abroad. GMAC enjoys strong liquidity, and expects to continue to have ample access to the capital markets and other financing sources to meet its needs."
Cash and Liquidity
Cash, marketable securities, and short-term assets of the Voluntary Employees' Beneficiary Association (VEBA) Trust totaled $24.5 billion at Sept. 30, 2004, excluding financing and insurance operations, down from $25.0 billion on June 30, 2004. Cash flow is typically lower in the third quarter due to lower production volumes and costs related to the introduction of new vehicles. In addition, GM experienced higher spending on health care than in prior years and additional losses in Europe. For the nine months ended Sept. 30, 2004, automotive cash flow stood at $2.0 billion. While GM expects positive automotive cash flow in the fourth quarter, it has become more challenging to achieve GM's previously stated target of $5 billion for the full year. Looking Ahead GM continues to expect total U.S. industry sales of approximately 17.2 million vehicles in calendar year 2004. As a result of increased losses in Europe and slower growth in Asia Pacific, GM is revising its 2004-calendar-year earnings guidance to between $6.00 and $6.50 per share, excluding one-time items. This is in line with GM's original target at the start of the year and down from the midyear guidance of approximately $7.00 per share.
Source: GM Media