General Motors comes up short in first quarter

General Motors, the world's biggest automaker, posted a first-quarter net loss of $1.1 billion on falling U.S. auto sales and abandoned its profit forecast for the year.

GM, which is negotiating with unions to reduce the $5.6 billion it expects to pay for employee health costs this year, withdrew the forecast a month after predicting it would make as much as $2 a share in 2005. It said it can't project earnings until it resolves the "health-care cost crisis."

"It's a great concern that the company cannot forecast results nine months out," said Brian Bruce, who helps manage $17 billion at PanAgora Asset Management in Boston, including GM shares. "If they can't, who can?"

GM's North American automotive division lost $1.34 billion and 1.2 percentage point of U.S. market share in the quarter, increasing pressure on Chief Executive Officer Rick Wagoner, 52, to cut costs, boost U.S. sales and renegotiate labor contracts with his biggest union. GM and Ford, the second-biggest U.S. automaker, are trying to reverse falling U.S. market share at the hands of Toyota and other Asian carmakers.

GM shares, which are down 35 percent this year, fell 10 cents to $26.09 yesterday. Earlier yesterday the stock hit $24.67, its lowest in 12 years.

GM doesn't plan to cut its $2-a-share annual dividend to save cash, Chief Financial Officer John Devine said. The company does have as much as $6 billion available this year from a $20 billion retiree health-care fund that it can draw on to pay expenses if needed, Devine said. The fund is voluntary and doesn't have a set level, he said.

"We can extract from it pretty aggressively," Devine said. "If we need it to run the business, we're going to use it."

The first-quarter loss, its biggest since 1992, was $1.95 a share, compared with net income of $1.28 billion, or $2.25 a share, in the same period a year earlier, the company said.

"We expected a difficult quarter and that's what we saw," Devine said on a conference call yesterday with analysts and reporters.

GM spent about $148 million in the quarter to cut 2,800 salaried jobs, or 5 percent of the salaried work force, Devine said.

The auto unit had a negative cash flow of $3 billion before accounting for $1.7 billion spent to dissolve an alliance with Fiat and expenses to cut GM's European work force. The unit lost $103 million in Europe during the quarter.

GM said cash, marketable securities and assets of a retiree health-care trust totaled $19.8 billion on March 31, excluding financing and insurance operations. That's down from $23.3 billion on Dec. 31.

"It's less of an issue of earnings than how much cash they can generate," said Philip Guziec, an analyst at Chicago-based Morningstar. "The company is in a horrible position."

GM reported a $1.48-a-share loss, excluding some items. On that basis, the automaker was expected to lose $1.49 per share, according to a survey of 14 analysts. GM forecast an adjusted loss of $1.50 per share in a March 16 statement, citing slumping U.S. sales and production.

The loss even caught President Bush's attention.

In an interview broadcast on CNBC yesterday, Bush said that GM is "going to have to learn to compete."

"In other words, if the consumer starts saying, 'We want a different kind of automobile,' they're going to compete once again with, say, the Japanese automobile manufacturers to ... keep their lion's share of market demand," Bush said.

Dan Genter, president of RNC Genter Capital Management in Los Angeles, said GM needs to get concessions from its 112,000 United Auto Worker (UAW) members that would reduce its health-care tab and give the company more control over closing plants.

On Thursday, GM revealed that it hadn't asked officials of the UAW to revise their current contract to reduce health-care costs.

John Buttermore, vice president of labor relations for GM in North America, told reporters Thursday that "within the agreement there's a lot we can do, but there's a lot we need to do. We need to keep working on this with a strong sense of urgency."

Union spokesman Paul Krell declined to comment yesterday.

The automaker has 1.1 million employees, retirees and dependents covered by its health plan. Those benefits add about $1,525 to the cost of each U.S. car and truck sold domestically. Asian automakers such as Toyota don't face similar costs at U.S. plants because they have a younger work force and fewer retirees.

GM will come up with a plan to eliminate or trim 1 million cars and trucks worth of excess-production capacity, equivalent to about eight assembly plants, within the next two quarters, wrote Prudential Equity Group analyst Michael Bruynesteyn. The cost-cutting will increase value, he said.

When GM last had losses as steep as those yesterday, the company was in the midst of 10 quarterly losses from 1990-92. During that time, the company ousted CEO Robert Stempel and set out to close 21 parts and assembly plants and eliminate 75,000 jobs. This is the first time since then that investors have sensed a crisis, said Sasha Kamper, investment manager at Principal Life Insurance.

"Historically, the market's perception is that these guys have been too darn nice," she said. "Things are bad enough that the market clearly feels it's time to get some real concessions, and it's time to cut costs aggressively and totally rework the system."

Information on President Bush's comments provided by Reuters.