[A-List] SIMPLY STAGGERING: GM took an $8.6 billion loss for 2005
cbrown at michiganlegal.org
Fri Jan 27 14:10:05 MST 2006
GM loses $8.6B Takes hit for layoffs, Delphi Promises better 2006
Bill Vlasic And Brett Clanton / The Detroit News
GM took an $8.6 billion loss for 2005 -- its first annual loss since 1992.
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DETROIT -- General Motors Corp. closed the books Thursday on a miserable
2005, but in the process took major steps toward downsizing its North
American auto operations and resolving its long-term pension obligations at
bankrupt Delphi Corp.
GM's staggering $8.6 billion loss last year was the second-worst in its
history, underscoring the automaker's dismal performance in the U.S. market
and its crippling problems with health care costs and excess factories.
But the huge loss was due in part to $3.6 billion in charges taken in the
fourth quarter to fund the cost of factory closures and long-term pension
and benefit obligations to former GM workers employed at Delphi.
The Delphi-related charge was the first evidence that GM and the United Auto
Workers have made progress in talks to provide a so-called "soft landing"
for thousands of Delphi workers whose jobs are on the line in bankruptcy.
GM also disclosed that it is in discussions with the UAW on "an accelerated
attrition program" that could pave the way for a wave of early retirements
in its hourly work force.
By some estimates, about half of GM's 105,000 blue-collar workers in the
United States will be eligible to retire by 2007 with 30 years of service.
North American losses grow
The depths of GM's troubles in North America in 2005 were written in red ink
-- a loss of $5.6 billion for the year, including a $1.5 billion loss in the
fourth quarter alone. As a result, GM lost an estimated $1,067 on each of
the 5.2 million vehicles it delivered across North America last year.
"2005 was one of the most difficult years in GM's history, driven by poor
performance in North America," GM Chairman Rick Wagoner said.
Analysts said GM's performance was all the more troubling given that Ford
Motor Co. had a fairly strong fourth quarter.
"In North American automotive, it is as if GM and Ford both walked outside
on a rainy day -- Ford somehow came back with a suntan, while GM walked back
inside soaked," said Morgan Stanley's Jonathan Steinmetz.
Wagoner, who has been under heavy pressure to turn around GM's core auto
business, declined to predict when GM North America will make money again.
However, the company said it expects "significant improvement" in the
division's operating results this year.
The size of the improvement will depend on GM reaching its target of
slashing its North American costs by $6 billion annually beginning this
GM plans job cuts
In November, GM unveiled a sweeping restructuring plan to cut 30,000 hourly
jobs and close or downsize six assembly plants and several other facilities
in North America.
To pay for the manufacturing capacity reductions, GM took a $1.3 billion
charge in the fourth quarter -- $800 million to cover the costs of laid-off
workers headed to the JOBS bank and another $500 million for writing down
the value of the affected plants.
GM also took a $2.3 billion after-tax, fourth-quarter charge to fund its
potential pension and benefits obligations for 33,000 hourly workers at auto
parts giant Delphi, the GM corporate spinoff that filed for Chapter 11
bankruptcy last year.
Delphi Chairman Robert S. "Steve" Miller has said the bankrupt parts maker
cannot afford its accumulated legacy costs for hourly workers. But GM's
Delphi-related charge is its first direct admission that the automaker will
fund the benefits going forward.
In its results, which GM said were preliminary and subject to change when it
files a final report in March, the carmaker revised its estimate for benefit
obligations to ex-GM workers who transferred to Delphi. It said the
liability lies in the range of $3.6 billion to $12 billion, with the
ultimate cost in the lower end of that range. GM had said it might owe as
little as nothing.
The UAW had no immediate comment on the charges related to Delphi pensions
and benefits. However, UAW Vice President Richard Shoemaker said in a
statement Thursday that three-way discussions between GM, Delphi and the UAW
"While these three-way talks are still in the preliminary stage, the tone so
far has been constructive and we hope that continues to be true," Shoemaker
No highlights in quarter
Although GM took measures to fund its downsizing plans and Delphi
obligations, it could hardly put a positive spin on the plunging fortunes of
its North American auto business.
"Frankly, the losses are quite clear," said Fritz Henderson, GM's chief
financial officer, who called 2005 a "thoroughly forgettable year" in a
conference call to discuss the automaker's earnings. "They're very large,
substantial losses in North America."
In response, investors sold off GM shares Thursday, driving down the share
price 3.3 percent to $23.05.
In addition, Moody's Investors Service placed the B1 long-term rating of
General Motors Acceptance Corp., the automaker's finance arm, on review for
possible downgrade upon seeing a weaker automotive operating cash position
in the fourth quarter. GMAC dropped to $2.8 billion, down from $2.9 billion
GM's revenues in North America fell 9 percent to $105 billion, but the
company suffered more from the reduction in sales of high-profit
sport-utility vehicles and pickups. "We are surprised at the scale of the
(fourth-quarter) losswith truck production down only 1 percent," said
Goldman Sachs analyst Robert Barry. "But apparently a very low SUV build was
in the truck number."
Henderson took a dim view of the automaker's performance in the fourth
quarter, which was GM's fifth consecutive quarterly loss. "There are no
highlights, really," he said. "It was a very, very tough quarter."
Counting on new SUVs
GM is banking on the current launch of new versions of its big SUVs such as
the Chevrolet Tahoe and Cadillac Escalade. But analysts were pessimistic
that the new sport utilities will shore up GM's bottom line soon.
"Although GM is in the middle of launching its much-touted large trucks,
(overall GM product) mix will likely be negative at least through the first
half of 2006," said John Murphy of Merrill Lynch.
GM's Henderson also acknowledged the danger of placing too high a bet on
single vehicle categories to lead a turnaround or sustain the company. That
bet brought disastrous consequences in 2005 as GM struggled to pitch its
large SUVs even as a spike in gas prices and a widening range of vehicle
alternatives spurred consumers to look elsewhere.
Including the new SUVs, GM is launching about 20 new vehicles in North
America this year, ranging from the Saturn Sky roadster to the redesigned
Chevy Avalanche pickup. The automaker expects the new cars and trucks to
account for nearly 30 percent of its sales volume this year and help lift
the company to better results.
You can reach Bill Vlasic at (313) 222-2152 or bvlasic at detnews.com.
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