Industry News
GM cuts Q1 net loss by about $1 billion to $323 million
21st April 2006
General Motors yesterday reported preliminary first quarter Q1 2006 results including a net loss of $323 million, about $1bn better than a year earlier, achieved on record quarterly revenue, up 14.1%, of $52.2bn. North American results were $567m better than in Q1 2005, despite a $484m health care charge. Liquidity at the end of March was up at $21.6bn.
“The first quarter represented an important milestone in GM and GM North America’s turnaround,” said GM Chairman and Chief Executive Officer Rick Wagoner.
The preliminary net loss of $323 million was more than accounted for by the inclusion of a $681 million after-tax charge related to GM’s recently approved health care settlement agreement for its retired US production workers, and compared to the loss of $1.3 billion a year earlier.
Excluding special items but including the effect of the $681 million health-care charge ($1 billion pre-tax), GM reported a preliminary adjusted loss of $529 million. In the same quarter of 2005 GM had reported an adjusted loss before special items of $988 million, or $1.75 per share.
The reported results for the first quarter of 2006 include a gain of $317 million, or $0.56 per share, from the sale of most of GM’s stake in Suzuki, partially offset by restructuring charges totalling $111 million, or $0.19 per share, at GM North America, GM Europe and GM Latin America/Africa/Middle East.
The health-care settlement between GM and its largest labour union, the United Auto Workers, is expected to result in an immediate 25% reduction in GM’s healthcare liability, of about $15 billion from the second half of the year. Beginning July 1, the pre-tax savings associated with the agreement will be approximately $750 million per quarter through 2011.
GM's automotive operations reported an adjusted loss of $721 million in 2006, including the health-care charge, halving the year-earlier adjusted loss of $1.5 billion. All of the company’s automotive units reported progress in the quarter, with three out of the four units posting profitable results.
Global automotive sales rose 4.4 percent to 2.2 million units as strong sales in GM’s Asia Pacific and Latin American regions were partially offset by declines in the United States and Canada. Global market share was down slightly to 13.2 percent from 13.3 percent a year ago.
GM North America reported an adjusted loss of $946 million in the first quarter of 2006, including $484 million of the retiree health care settlement charge. This compares to an adjusted loss of $1.5 billion a year ago. Higher production volumes, improved mix and better net pricing contributed $1.1 billion of improvement to GMNA operating earnings, offset in part by the health care charge. Revenue per unit sold in GMNA was significantly higher in the quarter versus a year ago, mostly attributable to better pricing and a richer mix. US dealer inventories ended the quarter at 1,169,000 vehicles, down 74,000 units year-on-year.
GM recently increased its structural cost reduction target in North America by more than $1 billion, to $7.5 billion on a running rate basis by the end of 2006, during which time GM expects capital spending to total approximately $8.7 billion, an increase of approximately $800 million over 2005.
GM Europe reported adjusted earnings of $88 million, a significant improvement from the year-ago loss of $92 million, reflecting improved pricing, continued progress in reducing structural and material costs, better mix and lower warranty and policy costs. In addition, Saab showed unspecified but ‘significant’ financial improvement and sold more than 34,000 vehicles worldwide, a first-quarter record.
GM Asia Pacific (GMAP) reported adjusted earnings of $81 million, up from $70 million a year ago, reflecting improved sales volumes in China and higher sales volumes from GM Daewoo.
GM Latin America/Africa/Middle East reported adjusted earnings of $56 million, up from $31 million in the same period last year. This reflects a significant improvement in Brazil.
General Motors Acceptance Corporation (GMAC) earned $605 million in the first quarter of 2006, compared to $728 million in the year-ago period. GM expects the sale of its 51% stake to an investor consortium to close later this year. GMAC is expected to provide $14 billion in liquidity to GM over the next three years.
GM’s cash, marketable securities, and readily-available assets of the Voluntary Employees’ Beneficiary Association (VEBA) trust totalled $21.6 billion at March 31, 2006, up from $20.4 billion on Dec. 31, 2005 and $19.8 billion on March 31, 2005. GM withdrew approximately $2 billion from the VEBA trust in the first quarter of 2006, including $1 billion from the short-term VEBA.
GM sold most of its 20-percent stake in Suzuki during the first quarter, generating approximately $2 billion in cash. Also, GM recently announced the sale of its stake in Isuzu which generated approximately $300 million in proceeds in the second quarter of 2006. In February, GM reduced its common stock dividend by 50 percent, which is expected to save approximately $565 million annually. Finally, the planned sale of 51-percent of GMAC is expected to provide GM with up-front cash proceeds of about $10 billion and significant ongoing cash flow from retained assets and GMAC distributions over time.
“While we are encouraged by the speed and scale of the changes we’re implementing, there is clearly more work to be done,” said Rick Wagoner, GM chairman, “our next key priority is to reach a consensual agreement with Delphi and its unions that makes sense for all of the parties. The agreement we recently reached with the UAW on the attrition program is a significant step in achieving this objective, but there is more important work to do.”
- Ford Motor Company will release its first quarter 2006 financial results at 7 a.m. EDT today, 21 February – see www.ford.com.
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