GM's financial results for 2005:
G.M. Posts Worst Loss Since 1992 - New York Times : By MICHELINE MAYNARD: DETROIT, Jan. 26 -- By the middle of this decade, Rick Wagoner promised a few years ago, General Motors would again be king of the American road. The company would have dozens of new products aimed at beating foreign automakers, Mr. Wagoner, G.M.'s chief executive, said in 2002. With those new cars and trucks, G.M. would rebuild market share and its profits would help it stay ahead of the high cost of providing health care. Instead of fulfilling Mr. Wagoner's promise, G.M. went into reverse on Thursday. The company reported an $8.6 billion loss for 2005, the year it began its latest revamping, meant to reverse a string of losses and fend off relentless competition. G.M. reported a profit of $2.8 billion in 2004.
The loss rounded out one of the worst weeks in Detroit's recent memory. On Monday, Ford Motor unveiled its turnaround plan, called the Way Forward, which calls for closing 14 plants and eliminating 30,000 jobs in the next six years. The news this week from G.M. and Ford "is the sad story of two armies in retreat, a retreat that is feeling more and more like a rout," said James P. Womack, an author and expert on manufacturing efficiency.
G.M.'s loss, which translated to $15.13 a share, was G.M.'s biggest since 1992, when its directors tossed out its management team and installed new executives, including Mr. Wagoner. That year, G.M. lost $23.5 billion, in part because of accounting rules that required companies to account for costs related to future retirees. As recently as April, G.M. expected to earn money in 2005. Instead, its loss included a raft of charges connected with a recently announced revamping plan, under which it plans to eliminate 30,000 jobs and close all or parts of a dozen plants through 2008.
G.M. also took charges for costs it expects to incur from the bankruptcy filing of the parts maker Delphi Corporation, which G.M. spun off in 1999, and the expense of paying workers expected to be laid off from plants that are set to close. G.M. shares fell 80 cents on Thursday to close at $23.05. G.M.'s North American auto business alone lost more than $5 billion last year, hit hard by a slump in sales of the big sport utility vehicles on which G.M. depends heavily. As a result, G.M.'s market share fell to the lowest level since 1925.
That was not what Mr. Wagoner envisioned a couple of years ago, when G.M. seemed solidly on a path to better performance. But G.M.'s 2005 results "really exposed the structural weakness of our business," Frederick A. Henderson, the company's chief financial officer, said Thursday. Despite years of cost-cutting, G.M.'s spending on employee and retiree health care rose in 2005, even with an agreement with the United Automobile Workers union aimed at reducing that expense. Though G.M. has spent the last few years rolling out new vehicles, Mr. Henderson said G.M. still depends on too few models for the bulk of its income.
In particular, G.M. sold 150,000 fewer large S.U.V.'s in 2005 than in 2004, cutting deeply into profits. While G.M. is bullish on a new family of sport utilities that have just been introduced, it does not expect to have a full supply until later this year. Meanwhile, G.M.'s competition, especially from foreign auto companies like Toyota, has intensified. Foreign auto companies held just over 43 percent of the American market in 2005, their highest share ever. "The business is global, and it's only getting more global," Mr. Henderson said emphatically.
The contrast between G.M. and Toyota, which is challenging G.M. for the title of the world's biggest carmaker, could not be more stark. Toyota earned $11 billion in the year that ended in March 2005, and it expects to exceed that when it closes its fiscal year in two months. The problems in Detroit have raised the issue of a federal bailout, like the one the Chrysler Corporation received from Congress in 1979. Ford had not asked him for federal aid -- nor would he look favorably upon such a request. Mr. Bush said he would instead encourage the automakers to build "a product that's relevant."
G.M.'s $4.8 billion loss in the fourth quarter was its fifth consecutive quarterly loss. The company lost $99 million in the fourth quarter of 2004, kicking off the string. In a conference call, Mr. Henderson told analysts, "There are no highlights. It was a very, very tough quarter." Mr. Henderson said G.M.'s plan to cut its structural costs $7 billion a year was a good start. Rather than raise the target now, he said, "I'm a believer in first getting done what you have on your plate." Analysts, however, said G.M. needed to accelerate its cost-cutting, especially in light of its year-end performance. "So far they haven't been able to see a strong sense of urgency," said Shelly Lombard, a bond analyst at Gimme Credit. "It's a little here and a little there. It's not the sweeping kind of change that this company needs."
Earlier this month, Mr. Wagoner predicted that G.M. would begin to show better results in the first quarter, although he would not say when G.M. would return to profitability. John Murphy, an automotive analyst with Merrill Lynch, said the cost-cutting should help reduce G.M.'s losses in North America this year, "but they will remain substantial," he wrote in a research report. In December, Standard & Poor's Ratings Services cut G.M.'s debt rating two notches deeper into junk, and said the company could be forced to seek bankruptcy protection if its revamping plan did not bear fruit.
Mr. Wagoner has strongly denied that G.M. has plans to file for Chapter 11. But if that were to happen, the company could quickly deplete its cash, which stood at $20.5 billion at the end of 2005. Although that was up slightly from the fourth quarter of 2004, G.M.'s cash has fallen about a third in two years' time. Some analysts questioned G.M.'s decision to book an $800 million charge in the quarter to reflect the costs related to laid-off workers, some of whom will wind up in the Jobs Bank. The program, provided at each of the Detroit auto companies, guarantees full pay and benefits for laid-off workers who do not retire or find jobs at other factories. Generally, companies book the expense when they close plants, but G.M. will not shut the first of its dozen factories until later this year.
Mr. Henderson said, however, that G.M. could calculate how many workers were likely to end up in the Jobs Bank, based on their ages and the few jobs that might be available elsewhere in the company. He said G.M. was pushing to reach agreement with the U.A.W. on a deal that would offer special incentives for workers who retire rather than go into the Jobs Bank. "We're anxious to do it. The U.A.W. is anxious to do it. We think we can do it" before 2007, when national contract talks take place, he said.