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October 15, 2004

USA: GM’s Q3 earnings undershoot expectations

GM's earnings rose an unexpectedly slim 3.5 percent in the third quarter, hurt by continued use of costly incentives to lure American buyers and poor results in Europe, where the company confirmed that it will cut costs and shed 12,000 jobs – around a fifth of its European workforce.

By bcusack

GM’s earnings rose an unexpectedly slim 3.5 percent in the third quarter, hurt by continued use of costly incentives to lure American buyers and poor results in Europe, where the company confirmed that it will cut costs and shed 12,000 jobs – around a fifth of its European workforce.

The results came in significantly worse than many analysts’ expectations.

GM’s global automotive business lost $130 million in the quarter, the first quarterly loss in its automotive business in six years. The company expressed concern about high operating costs in Europe and spiralling US healthcare costs.

GM also lowered its earnings forecast for the year. GM revised its 2004 earnings guidance to between $6 and $6.50 a share, down from its midyear guidance of $7 a share.

“Competition in the automotive business around the globe remains intense, and we’re seeing negative pricing in most major markets,” said GM chairman and chief executive Rick Wagoner. “Our automotive earnings in the third quarter reflect these challenging market conditions and were frankly disappointing.”

Even though it has increased its European market share slightly this year, GM has had persistent losses amid sluggish consumer demand. GM said it likely would incur charges to earnings in 2005 and 2006 because of the new restructuring.

Rick Wagoner also said: “We have to move more aggressively to address some chronic cost issues.” He also said US healthcare costs were “really out of control” and that GM’s concern was shared by other US businesses: “This is a big issue and, in some cases, reaching crisis proportions”.

 

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