GM posts $38.7 billion loss
DETROIT – General Motors’ new Chevrolet Malibu sedan is so popular dealers can barely keep it in stock.
Even with boosted production, it will likely be April or May before demand is met.
“I hope we’re never there,” Mark LaNeve, GM’s sales and marketing chief, joked last week at the Chicago Auto Show. “Those are good problems.”
But for every good problem at the world’s largest automaker, there are a host of bad ones. GM is being pummeled by the economy, fierce competition, government regulations and gas prices. Even as it enjoyed near-record sales in 2007, outpacing rival Toyota Motor Corp., it ended the year with a record $38.7 billion loss and announced further buyouts Tuesday to cut costs.
GM wouldn’t say how many of its 74,000 UAW-represented hourly U.S. workers it hopes to shed or how much it expects to spend on the buyouts. But under its new contract with the UAW, it will be able to replace up to 16,000 workers doing non-assembly jobs with new employees who will be paid half the old wage of $28 an hour.
Chief Financial Officer Fritz Henderson said the buyouts would help GM’s bottom line as early as this fall, and the company is confident that results will improve in 2008 despite sagging U.S. demand.
For one thing, nearly 60 percent of its sales come from overseas, and GM was profitable in every region outside North America in 2007. Henderson also said GM is expecting U.S. sales to improve in the second half of the year as pent-up demand begins to spill into the market.
“We see more risks than upsides in ‘08 for the U.S. industry,” Henderson said. “But we’re not conceding ‘08, because certainly on a global basis we think we can actually improve from ‘07.”
Still, Henderson said it will likely be 2010 or 2011 before GM sees “significant earnings increases” – after it reduces its work force and labor costs, transfers its retiree health care costs to a new trust run by the United Auto Workers and ends a costly tie-up with Delphi Corp., its former parts supplier, which is expected to emerge from bankruptcy soon.
“We need to get all the structural costs down,” Henderson said. “We need to step on the gas in terms of how we’re performing in the market as well.”
New products also are helping to bring more buyers into GM’s showrooms. GM bucked the industry in January, posting a 3 percent increase in sales when every other major automaker was down. Sales of its Cadillac CTS rose 95 percent in January. LaNeve said GM is scrambling to meet demand for the new Buick Enclave crossover.
Analysts were disappointed with the fourth-quarter results, particularly in North America, and shares in GM fell 52 cents, or 1.9 percent, to close at $26.60.
GM’s results also were dragged down by its 49 percent stake in GMAC Financial Services, which lost $2.3 billion last year because of its ResCap mortgage division. GM attributed a $1.1 billion loss to GMAC.
But analysts focused mostly on the $1.5 billion loss in GM’s North American division, nearly identical to its loss in 2006. GM Chairman and Chief Executive Officer Rick Wagoner said the weak U.S. economy and high commodity prices hurt turnaround efforts in North America, as did GM’s decision to reduce low-profit sales to daily rental companies by 110,000.
Morgan Stanley auto analyst Jonathan Steinmetz said GM also was hurt by increased incentive spending to help its new full-size pickups compete with the Toyota Tundra. Pricing competition is expected to intensify this year, when both Ford Motor Co. and Chrysler LLC bring out their own new full-size pickups.
For the fourth quarter, GM posted a loss of $722 million compared with a net income of $950 million in the year-ago quarter. Fourth-quarter charges included $622 million to Delphi for its restructuring efforts, and a gain of $1.6 billion because of tax credits related to GM’s pension liabilities and the sale of its Allison Transmission unit.
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