General Motors is revising its first-quarter and calendar-year earnings guidance to reflect lower North American sales and production volumes, a tougher pricing environment, and a more car-based sales mix.
GM’s other automotive regions and GMAC are all on track to meet or beat their 2005 net income targets.
“Clearly we have significant challenges in North America. The rest of our automotive businesses, and GMAC, are running in line with, or ahead of, our expectations,” said GM Chairman and CEO Rick Wagoner. “But North America is our biggest business, and the key driver of automotive earnings and cash flow. So it’s important that we get this business right.”
GM expects to report a loss of approximately $1.50 per fully diluted share in the first quarter of 2005, excluding special items, compared to a previous target of breakeven or better. For the calendar year, GM expects to report earnings of approximately $1.00 to $2.00 per share, excluding special items, compared to a previous target of $4.00 to $5.00 per share.
GM also expects negative operating cash flow in 2005 of approximately $2 billion, before the Fiat settlement and GM Europe restructuring, versus the previous target of positive $2 billion. This is primarily attributable to lower volumes and decreased net income at GM North America (GMNA). GM’s 2005 corporate capital spending remains at approximately $8 billion, or $1 billion above 2004 levels.
GM’s previous first-quarter earnings guidance was based on North American vehicle-production volume of 1.25 million vehicles. Since then, production schedules have been reduced by approximately 70,000 vehicles. In addition, the pricing environment has been more competitive than expected in North America.
“The competitive environment that we face in North America means we must continue to find ways to reduce our costs and grow revenue,” said GM Vice Chairman and Chief Financial Officer John Devine. “While we have made good progress in reducing costs over the last several years, the projected loss in North America reinforces our need to do much more, particularly in the area of health care.
“At the same time, we expect to improve our revenue performance on the strength of our continuing stream of new cars and trucks, and our customer value-based marketing initiatives,” Devine said. “We are also significantly increasing the marketing support for important core vehicles to build more customer awareness and consideration.”
The company is encouraged by the building momentum of recently introduced cars and trucks, particularly the Chevrolet Equinox, Pontiac G6, Buick LaCrosse and Chevrolet Cobalt. The Equinox continues to gain share in the small-utility segment. Production of the Pontiac G6 is ramping up with two new engine choices and the segment’s first hardtop convertible and a sleek coupe coming in the near future. The LaCrosse continues to gain traction, with retail sales up 48 percent in February, compared with combined year-ago Century and Regal retail sales. The Chevrolet Cobalt continues to gain share in the entry-level segment and will gain further momentum with the availability of the Cobalt coupe just coming on line as well as more engine choices and a high performance SS model.
Looking ahead, GM intends to continue to aggressively strengthen its brand portfolio with the introduction this year of the Chevrolet HHR, Monte Carlo and Impala; the Hummer H3; the Pontiac Solstice, Torrent and G6 coupe; the Cadillac DTS; the Buick Lucerne; and the Saab 9-3 wagon and 9-7X.
“We are staying the course on our key product programs and, in fact, are planning to accelerate the introduction of some of our most important launches,” Wagoner said. “Great cars and trucks are the key to success in this business, and so remain our top priority.”
The outlook for GM’s other business sectors and units remains positive. The turnaround at GM’s Latin America/Africa/Mid-East (GMLAAM) region continues to gain momentum and GM Asia Pacific (GMAP) remains on track. In Europe, GM continues to progress with its major structural-cost-reduction moves, including the agreements with its labor unions on employment reductions, while market share and revenue show an improving trend.
“GMAC is on target to exceed expectations, despite higher interest rates and wider borrowing spreads,” Wagoner said. “Much of GMAC’s success stems from its ability to diversify its funding sources. We’re confident that GMAC can continue to sustain strong levels of profitability.”
Murdok | Breaking eBusiness News
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