The lack of universal healthcare in the U.S. is going to bury one of
it's largest corporation.
http://www.signonsandiego.com/news/business/20050419-1351-earns-gm.html
GM posts $1.1 billion loss, cites spiraling health care costs
By John Porretto
ASSOCIATED PRESS
1:51 p.m. April 19, 2005
DETROIT – General Motors Corp. and the United Auto Workers union appear
headed for a historic clash as spiraling health care costs seemingly
threaten the very survival of the world's largest carmaker.
GM reported Tuesday it lost $1.1 billion in the first quarter, its
largest quarterly loss in more than a decade, and it cited the cost of
providing health coverage for its workers and retirees as a main culprit.
GM didn't provide details of what it spent in the quarter for medical
expenses, but it has said the bill for covering its 1.1 million
employees, retirees and family members is likely to approach $6 billion
in 2005, up 15 percent from last year's tab of $5.2 billion.
"Addressing health care is our top objective," GM chief financial
officer John Devine said on Tuesday.
But it may be years before any concrete results are evident. That's
because the current four-year labor agreement with the UAW runs through
2007, and union leaders said last week they have no intention of
renegotiating the current contract. Instead, they said they'd do what
they could within the agreement to help GM reduce health care spending.
UAW spokesman Paul Krell said the union had no comment Tuesday about
GM's first-quarter results.
"Our view is that concessions are highly unlikely before 2007, and that
today's statement underscores that restructuring GM's North American
operations will be a long, arduous process," Merrill Lynch analyst John
Casesa said in a research note.
The company faces other obstacles as well. Its product focus in the past
year or so has been on its car lineup, which generates lower profits
than trucks and sport utility vehicles. Yet car sales have been
lackluster, contributing to a 4 percent decline in overall business for
the first three months of the year. Sales of big trucks and SUVs are off
too, in part because of high gas prices.
And, like No. 2 U.S. automaker Ford Motor Co., GM continues to battle
declining U.S. market share amid intense competition from Asian rivals
such as Toyota Motor Corp. and Nissan Motor Co. Analysts say GM may be
able to lift sales with an improved vehicle portfolio, but stemming
market share losses will be difficult if not impossible.
GM's foreign rivals also don't face the same health care cost challenges
because, for the most part, they have younger employees, fewer retirees
and different systems for paying for health care. That's why GM, Ford
and others have been trying to focus more attention in corporate America
and at the state and federal levels on what they describe as a health
care crisis.
GM warned investors in March that its first-quarter earnings would be
below previous estimates of break-even or better, in part because of
medical costs. And it reduced its guidance for full-year earnings to
between $1 and $2 per share, down from a previous estimate of $4 to $5 a
share.
But significantly, it declined to reaffirm that guidance Tuesday and
offered no further forecast, citing "the uncertainty affecting key
elements of our financial forecast, such as resolution of the
health-care cost crisis."
Standard & Poor's, Moody's Investors Service and Fitch Ratings all have
cut GM's debt rating to one notch above junk status because of declining
market share, increased competition and other reasons. Further
downgrades could significantly increase GM's borrowing costs, though
none of the agencies acted after GM's report Tuesday.
An S&P spokesman said GM's first-quarter results were in line with the
agency's expectations.
GM's first-quarter loss amounted to $1.95 per share, compared with
earnings of $1.3 billion, or $2.25 a share, in the year-ago quarter,
when the company benefited from its finance arm and improved business in
Asia. Revenue fell 4.3 percent to $45.8 billion from $47.8 billion a
year ago.
The January-March period marked GM's steepest quarterly deficit since
the first quarter of 1992, when it reported a $21 billion loss primarily
because of changes in accounting procedures for retiree health care costs.
GM shares fell 10 cents to $26.09 in trading Tuesday on the New York
Stock Exchange, slightly above the lower end of its 52-week range. Its
shares have plunged in recent weeks to levels not seen in a decade or more.
The company behind brands such as Chevrolet, Saturn and Hummer led the
industry with 29 U.S. vehicle introductions in 2004 and plans to follow
that with 17 this year.
On top of lukewarm car demand and rising medical costs, GM also battled
intense pricing competition in the first quarter. Revenue per vehicle in
North America fell to $18,396, down from $19,084 a year ago, in part
because of reduced pricing on some vehicles.
Excluding special charges, GM said first-quarter earnings amounted to a
loss of $839 million, or $1.48 a share, compared with net income of $1.2
billion, or $2.12 a share, in the first quarter of 2004.
GM's special items included charges for restructuring in Europe, where
it trimmed its payroll by nearly 6,000 in the first quarter, and U.S.
salaried attrition programs. Devine said the company lowered its U.S.
salaried headcount by 2,800 in the first quarter.
GM said its cash, marketable securities and available assets from an
employees' health care trust fund fell from $23.3 billion on Dec. 31 to
$19.8 billion on March 31, excluding financing and insurance operations.
The decline reflects lower vehicle production, restructuring costs and a
$2 billion settlement with Fiat SpA to resolve a contract dispute.
The $1.3 billion loss from GM's global automotive business compared with
earnings of $561 million in the year-ago quarter. In North America, GM
said it lost $1.3 billion versus a profit of $401 million in the first
quarter of 2004.
GM's GMAC finance arm, which has contributed heavily to profits in
recent quarters, earned $728 million in the quarter, down from $764
million in the year-ago quarter. The last time GM's automotive earnings
outpaced those at GMAC was in the fourth quarter of 2002.
GM Europe posted a loss of $103 million in the first quarter, an
improvement from a loss of $116 million a year ago.
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