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GM reports $1.1-billion quarterly loss

The company struggles with health care costs, poor sales of new models and competition from Asian automakers.

DETROIT - General Motors Corp. reported its deepest quarterly loss in more than a decade - $1.1-billion - as rising health care costs and lackluster response to some new models hammered its North American business. With health costs not getting any cheaper and Asian automakers grabbing more of the market, the outlook for the world's largest automaker remains bleak.

The January-March loss marked GM's steepest quarterly deficit since the first quarter of 1992, when it reported a $21-billion loss primarily because of changes in accounting procedures for retiree health care costs.

Revenue fell 4.3 percent.

"We expected a difficult quarter," GM chief financial officer John Devine said. "Obviously, that's what we saw."

GM shares fell 10 cents to close at $26.09 on the New York Stock Exchange after falling as low as $24.67 during the day. In recent weeks, GM shares have traded at lows not seen in more than a decade.

The company behind brands such as Chevrolet, Saturn and Hummer simply hasn't had the response to a slew of new products it expected. GM led the industry with 29 U.S. vehicle introductions in 2004 and plans to follow that with 17 this year.

On top of lukewarm car demand and rising medical costs, GM also battled intense pricing competition in the first quarter. Revenue per vehicle in North America fell to $18,396 from $19,084 a year ago, in part because of reduced pricing on some cars.

Meanwhile, Asian automakers such as Toyota Motor Corp., Nissan Motor Co. and Kia Motors Corp. have posted impressive sales gains. The growth, analysts say, can be attributed in part to their reputations for quality and new products, such as Toyota's Scion brand that targets younger buyers and the Nissan Titan, that company's first entry in the full-size pickup category.

Excluding special charges, GM said first-quarter earnings amounted to a loss of $839-million, or $1.48 a share, compared with net income of $1.2-billion, or $2.12 a share, in the first quarter of 2004, when the company benefited handsomely from its finance arm and improved business in Asia.

The latest result was in line with Wall Street expectations for a loss of $1.49 per share, according to Thomson Financial.

GM's special items included charges for restructuring in Europe, where it trimmed its payroll by nearly 6,000 in the first quarter, and U.S. salaried attrition programs. Devine said the company lowered its U.S. salaried head count by 2,800 in the first quarter.

GM said its cash, marketable securities and available assets from an employees' health care trust fund fell from $23.3-billion on Dec. 31 to $19.8-billion on March 31, excluding financing and insurance operations. The decline reflects lower vehicle production, restructuring costs and a $2-billion settlement with Fiat SpA to resolve a contract dispute.

GM warned investors in March its first-quarter earnings would be below previous estimates of break-even or better. It has said it expects income of $1 to $2 per share for the full year, down from a previous guidance of $4 to $5.

On Tuesday, the company declined to reaffirm its March guidance or offer a new forecast for the year. It cited "the uncertainty affecting key elements of our financial forecast, such as resolution of the health-care cost crisis."

GM has said U.S. health care costs continue to grow at an excessive rate and hamper profitability. GM spent $5.2-billion last year to cover 1.1-million salaried and hourly employees, retirees and family members. GM has said the amount could grow to $5.8-billion this year.

The United Auto Workers union said last week it had no intention of reopening its labor contract to negotiate lower medical expenses but would do what it could within the agreement to help GM lower costs.

Merrill Lynch analyst John Casesa said GM likely is "ratcheting-up pressure on the UAW to open the current contract," which expires in 2007.

Standard & Poor's, Moody's Investors Service and Fitch Ratings have cut GM's debt rating to one notch above junk status because of declining market share, increased competition and other reasons.

GM sales in the United States, its largest and most competitive market, sank 4 percent for the first three months of 2005 from a year ago. Its U.S. market share slipped to 25.6 percent from roughly 27 percent, according research firm to Autodata Corp.

[Last modified April 20, 2005, 02:56:36]