GM reports smaller 3Q loss as it starts to reap benefits of turnaround plan
Wednesday, October 25th 2006, 8:58 am
By: News On 6
DETROIT (AP) _ General Motors Corp. posted a smaller $115 million loss for the third quarter on Wednesday as it began to reap the benefits of its turnaround plan.
The world's biggest automaker said that excluding special charges, it would have earned $529 million in the period.
Its sales rose nearly 4 percent and it said the losses in both its global and North American automotive operations shrank as its efforts to cut costs have begun to show results.
GM's loss amounted to 20 cents per share for the July-September period and was far better than its loss of $1.7 billion, or $2.94 per share, a year earlier.
The company said that excluding charges associated with the reorganization at Delphi Corp., its former parts division, and its lowered assessment of the value of its finance arm, it earned 93 cents per share in the latest quarter.
That beat Wall Street expectations. Analysts polled by Thomson Financial predicted the company to earn 49 cents per share excluding special charges.
Still, GM stock dropped $1.28, or 3.5 percent, to $34.92 in early trading on the New York Stock Exchange.
The company also said its third-quarter revenue totaled $48.8 billion, up from $47.1 billion during the same period last year.
``This quarter's results reflect the work we've been doing, particularly on cost reduction, really beginning to take hold. This is the third quarter in a row where we've showed improvements of over a billion in our North American operations. ... Obviously not what we'd like but certainly with a billion-six improvement over last year, we're moving in the right direction,'' GM Chairman and Chief Executive Rick Wagoner said Wednesday morning on the CNBC cable network.
GM attributed much of the improvement to its global automotive operations, where the company still lost $116 million, but that was an improvement of $1.5 billion over last year's third quarter.
In North America, GM lost $374 million, but that was an improvement of $1.3 billion over last year, the company said.
Chief Financial Officer Fritz Henderson said the company is benefiting from significant cost reductions from its turnaround plan. The company is on target to reach $9 billion in structural cost reductions this year, he said.
Still, GM is losing money and is not satisfied with its cuts or improved revenue, Henderson said.
``We're reducing the level of cash burn year to date ... but still we're not generating cash,'' he said.
GM's report comes only days after Ford Motor Co. reported a loss of $5.8 billion for the quarter on slumping North American sales and massive restructuring costs.
Also on Wednesday, DaimlerChrysler AG posted a 37 percent drop in its third-quarter profit amid a slowdown in sales at its American arm, Chrysler Group. The German-American company earned 541 million euros ($686 million) in the July-September period, compared with a profit of 855 million euros a year earlier as sales fell 8 percent.
The Chrysler division posted an operating loss of 1.16 billion euros ($1.5 billion) in the quarter, compared with an operating profit of 310 million euros the previous year as its sales fell 26 percent.
GM looks for better sales in the fourth quarter as its redesigned pickup trucks and car-based crossover vehicles enter the market, but Henderson would not say when GM expects to turn a profit.
Globally, GM's market share in the quarter was 13.9 percent, down from 14.4 percent during the same quarter of last year. It dropped nearly a full point in the U.S. from 26 percent last year to 25.1 percent this year, losing share mainly to Asian competitors.
GM attributed to drop to its strategy to reduce low-profit sales to rental car companies in North America and Europe. Fleet sales, which include sales to rental companies, dropped from 25.2 percent in the third quarter last year to 24 percent this year.
The company benefited in the third quarter from a small increase in demand for trucks due to decreasing gasoline prices, Henderson said, although he said the consumer is still focused on fuel economy.
``That doesn't mean we are going to take our foot off the gas in terms of passenger cars,'' he said.
The company also reduced its estimated liability for employee benefits at Delphi to $6 billion to $7.5 billion, at the low end of previous estimates ranging from $5.5 billion to $12 billion. The company already has allocated $6 billion for the benefits.
Henderson said negotiations with Delphi, which GM spun off as a separate company that is now operating under Chapter 11 bankruptcy protection, and its creditors, have progressed.
``There's a lot of negotiation that's been going on. They're not done. We're not saying they're done,'' Henderson said. ``Based upon what we know, we needed to narrow the range.''
Delphi, GM and the United Auto Workers are negotiating wage and benefit reductions at the troubled parts maker, and Delphi has asked a federal bankruptcy judge for permission to void its labor contracts.
Earlier this year, GM drastically cut its costs by winning health care concessions from the UAW and convincing about 35,000 hourly workers to leave the company under early retirement or buyout plans.