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Go Back   Hummer Forums by Elcova > General Hummer Talk > In the News

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  #1  
Old 03-17-2005, 10:10 AM
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GM Cuts Outlook
For 2005 Profit,
Reviews Strategy

Auto Giant's Shares Fall 14%
In Setback for CEO Wagoner;
'We Do Have to Drive Hard'
By LEE HAWKINS JR.
Staff Reporter of THE WALL STREET JOURNAL
March 17, 2005; Page A1

DETROIT – Auto giant General Motors Corp. rattled financial markets as it slashed its earnings estimates for the first quarter and full year of 2005 and said that the strategy Chairman and Chief Executive Officer Rick Wagoner has pursued since 2001 to sustain profitability needs an accelerated overhaul.

The abrupt profit warning from the world's largest auto maker represents a big setback for Mr. Wagoner, CEO since 2000, and his efforts to streamline GM's high-cost North American operations without resorting to radical cuts. After the terrorist attacks of Sept. 11, 2001, GM, worried that consumer spending was poised to drop, launched an aggressive round of heavy rebates and cut-rate financing to keep sales in North America flowing, while waiting for attrition to gradually reduce its costly unionized work force.

But GM continues to see its market share fall and inventories of unsold vehicles in North America rise. New models it has touted have failed to grab consumers' attention. It faces increased competition from nimbler overseas rivals, especially Japan's Toyota Motor Corp., and is burdened by heavy costs from health-care and pension obligations to its 1.1 million employees, retirees and their dependents.

The announcement sent GM's shares and debt reeling. Shares dropped nearly 14%, or $4.71, to $29.01 in 4 p.m. composite trading on the New York Stock Exchange. Yesterday's close was the lowest in more than 10 years, on a split-adjusted basis. The decline trimmed about $2.7 billion off the company's market capitalization, and accounted for nearly 35 points of the 112.03-point drop in the Dow Jones Industrial Average, which ended at 10633.07.

Bonds of GM were battered, too, as investors worried that its credit ratings could get downgraded to junk status. Both Standard & Poor's and Moody's Investors Service moved closer to doing just that as they revised their outlooks on GM's ratings to negative.

In a further bit of bad news for GM and all auto makers, U.S. crude-oil futures reached a new New York Mercantile Exchange record, with crude for April delivery gaining $1.41 to end at $56.46. The move is unrelated to GM's woes. Though that figure remains behind historical highs when adjusted for inflation, the surge in oil prices over the past year has pushed gas prices up and hurt demand for sports-utility vehicles, which GM has counted on for growth.

In a conference call yesterday, Mr. Wagoner and John Devine, GM's vice chairman and chief financial officer, said swifter and starker changes are needed to restore GM's profitability in North America.

"We made a lot of progress on reducing structural costs, but what we saved on the operating side has been filled in by higher legacy costs," Mr. Wagoner said, using a shorthand term for the comparatively rich health and pension benefits that are a legacy from the days when GM controlled more than 40% of the U.S. market. "We do have to drive hard on the revenue side, and we need to be more creative and more effective in addressing the legacy costs. They are kind of swamping a competitive operational performance."

Less than two months ago, in another conference call, Mr. Wagoner and other GM executives rebuffed Wall Street skeptics who questioned whether earlier earnings forecasts were too rosy given GM's many problems.

Despite the shortfall, Mr. Wagoner appears to retain the confidence of GM's board, according to people familiar with the situation, even at a time when boards at large companies are showing less patience with poorly performing CEOs. GM directors consider Mr. Wagoner "one of the best leaders in the industry," one knowledgeable person said, and think management is "doing all the right things for the long term."

Mr. Wagoner said GM's board "is well-informed on our strategy and very supportive of it. Our focus is on executing the plan." Still, he and Mr. Devine offered few specifics of that plan yesterday.

Whatever his plans, Mr. Wagoner faces significant hurdles in turning GM around. Weighed down by high health-care costs and pension obligations, the company is struggling to compete with lower-cost rivals, led by Toyota, which has set a goal of equaling or surpassing GM in global sales by the end of the decade. Adding to GM's woes are new, lower-cost factories being opened in North America by Asian and European auto makers.

Meanwhile, new models that GM executives said would turn the tide for the company have yet to deliver significant enough gains to offset slumping demand for older models. Sales of large SUVs such as the Chevrolet Suburban and GMC Yukon, GM's highest-profit vehicles, have collapsed as gas prices have risen and competition has increased from lighter, more maneuverable crossover wagons that offer many of the functions of a larger SUV.

Mr. Wagoner is betting that a new lineup of large SUVs, due out in early 2006, will sell as well as the old ones did earlier in the decade, and rebuild GM North America's bottom line. But some investors and GM competitors, notably Ford, argue that the large-SUV segment has matured and is in decline.

GM also faces a challenge in weaning consumers off the expectation that a bigger, better deal is just around the corner.

Mr. Wagoner confirmed a significant change in GM's marketing strategy, saying the company will back away from the broad-based deals, such as 0% financing, that have been its marketing hallmark since the Sept. 11 attacks. He and Mr. Devine said those actions, particularly the price cuts, were costly in the short term, which contributed to GM's expected first-quarter loss.

Instead, Mr. Wagoner said, GM will move toward targeted promotions and price cuts designed to bring vehicle list prices closer to the transaction prices consumers pay. GM also will invest more in building the image of its brands, put more money behind advertising for new models, and slash production to cut a glut of nearly 1.3 million unsold vehicles. GM also has moved to cut sticker prices of certain models, such as its midsize SUVs, to make them more competitive.

Mr. Wagoner has overseen strong gains by GM in productivity and steady progress on product quality. But those improvements haven't slowed GM's slide in U.S. market share. The auto maker's share fell to 25% at the end of February, down from nearly 33% a decade ago. At current U.S. sales levels, 8 points of share represents more than 1.3 million vehicles annually, or nearly six assembly plants.

Mr. Wagoner could get some help from consumers. He and other industry executives said U.S. vehicle sales appear to be stronger in March than in February.

GM's accelerating decline is rippling throughout the manufacturing economy, particularly in the industrial Midwest, where hundreds of large and small companies depend on the company.

GM production cuts have hammered profitability at several big U.S. auto-parts makers, particularly former GM unit Delphi Corp. Investors yesterday also sold shares of Ford Motor Co. and DaimlerChrysler AG. In response, Ford reaffirmed its previous profit guidance for the year, but warned it would be at the low end of the range of $1.75 to $1.95 a share.

In its warning, GM said it expects to incur a loss of $1.50 a share in the first quarter of 2005, excluding special items, compared with a previous estimate of break-even or better. The company also lowered its full-year expectation to $1 to $2 a share from a previous estimate of $4 to $5 a share, and said that instead of generating $2 billion in cash this year, as previously forecast, it will burn $2 billion in cash. In 2004, GM reported net income of $3.7 billion, or $6.51 a share.
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  #2  
Old 03-17-2005, 10:10 AM
Klaus's Avatar
Klaus Klaus is offline
Hummer Guru
 
Join Date: Nov 2002
Location: CSA
Posts: 2,511
Klaus is an unknown quantity at this point
Default

GM Cuts Outlook
For 2005 Profit,
Reviews Strategy

Auto Giant's Shares Fall 14%
In Setback for CEO Wagoner;
'We Do Have to Drive Hard'
By LEE HAWKINS JR.
Staff Reporter of THE WALL STREET JOURNAL
March 17, 2005; Page A1

DETROIT – Auto giant General Motors Corp. rattled financial markets as it slashed its earnings estimates for the first quarter and full year of 2005 and said that the strategy Chairman and Chief Executive Officer Rick Wagoner has pursued since 2001 to sustain profitability needs an accelerated overhaul.

The abrupt profit warning from the world's largest auto maker represents a big setback for Mr. Wagoner, CEO since 2000, and his efforts to streamline GM's high-cost North American operations without resorting to radical cuts. After the terrorist attacks of Sept. 11, 2001, GM, worried that consumer spending was poised to drop, launched an aggressive round of heavy rebates and cut-rate financing to keep sales in North America flowing, while waiting for attrition to gradually reduce its costly unionized work force.

But GM continues to see its market share fall and inventories of unsold vehicles in North America rise. New models it has touted have failed to grab consumers' attention. It faces increased competition from nimbler overseas rivals, especially Japan's Toyota Motor Corp., and is burdened by heavy costs from health-care and pension obligations to its 1.1 million employees, retirees and their dependents.

The announcement sent GM's shares and debt reeling. Shares dropped nearly 14%, or $4.71, to $29.01 in 4 p.m. composite trading on the New York Stock Exchange. Yesterday's close was the lowest in more than 10 years, on a split-adjusted basis. The decline trimmed about $2.7 billion off the company's market capitalization, and accounted for nearly 35 points of the 112.03-point drop in the Dow Jones Industrial Average, which ended at 10633.07.

Bonds of GM were battered, too, as investors worried that its credit ratings could get downgraded to junk status. Both Standard & Poor's and Moody's Investors Service moved closer to doing just that as they revised their outlooks on GM's ratings to negative.

In a further bit of bad news for GM and all auto makers, U.S. crude-oil futures reached a new New York Mercantile Exchange record, with crude for April delivery gaining $1.41 to end at $56.46. The move is unrelated to GM's woes. Though that figure remains behind historical highs when adjusted for inflation, the surge in oil prices over the past year has pushed gas prices up and hurt demand for sports-utility vehicles, which GM has counted on for growth.

In a conference call yesterday, Mr. Wagoner and John Devine, GM's vice chairman and chief financial officer, said swifter and starker changes are needed to restore GM's profitability in North America.

"We made a lot of progress on reducing structural costs, but what we saved on the operating side has been filled in by higher legacy costs," Mr. Wagoner said, using a shorthand term for the comparatively rich health and pension benefits that are a legacy from the days when GM controlled more than 40% of the U.S. market. "We do have to drive hard on the revenue side, and we need to be more creative and more effective in addressing the legacy costs. They are kind of swamping a competitive operational performance."

Less than two months ago, in another conference call, Mr. Wagoner and other GM executives rebuffed Wall Street skeptics who questioned whether earlier earnings forecasts were too rosy given GM's many problems.

Despite the shortfall, Mr. Wagoner appears to retain the confidence of GM's board, according to people familiar with the situation, even at a time when boards at large companies are showing less patience with poorly performing CEOs. GM directors consider Mr. Wagoner "one of the best leaders in the industry," one knowledgeable person said, and think management is "doing all the right things for the long term."

Mr. Wagoner said GM's board "is well-informed on our strategy and very supportive of it. Our focus is on executing the plan." Still, he and Mr. Devine offered few specifics of that plan yesterday.

Whatever his plans, Mr. Wagoner faces significant hurdles in turning GM around. Weighed down by high health-care costs and pension obligations, the company is struggling to compete with lower-cost rivals, led by Toyota, which has set a goal of equaling or surpassing GM in global sales by the end of the decade. Adding to GM's woes are new, lower-cost factories being opened in North America by Asian and European auto makers.

Meanwhile, new models that GM executives said would turn the tide for the company have yet to deliver significant enough gains to offset slumping demand for older models. Sales of large SUVs such as the Chevrolet Suburban and GMC Yukon, GM's highest-profit vehicles, have collapsed as gas prices have risen and competition has increased from lighter, more maneuverable crossover wagons that offer many of the functions of a larger SUV.

Mr. Wagoner is betting that a new lineup of large SUVs, due out in early 2006, will sell as well as the old ones did earlier in the decade, and rebuild GM North America's bottom line. But some investors and GM competitors, notably Ford, argue that the large-SUV segment has matured and is in decline.

GM also faces a challenge in weaning consumers off the expectation that a bigger, better deal is just around the corner.

Mr. Wagoner confirmed a significant change in GM's marketing strategy, saying the company will back away from the broad-based deals, such as 0% financing, that have been its marketing hallmark since the Sept. 11 attacks. He and Mr. Devine said those actions, particularly the price cuts, were costly in the short term, which contributed to GM's expected first-quarter loss.

Instead, Mr. Wagoner said, GM will move toward targeted promotions and price cuts designed to bring vehicle list prices closer to the transaction prices consumers pay. GM also will invest more in building the image of its brands, put more money behind advertising for new models, and slash production to cut a glut of nearly 1.3 million unsold vehicles. GM also has moved to cut sticker prices of certain models, such as its midsize SUVs, to make them more competitive.

Mr. Wagoner has overseen strong gains by GM in productivity and steady progress on product quality. But those improvements haven't slowed GM's slide in U.S. market share. The auto maker's share fell to 25% at the end of February, down from nearly 33% a decade ago. At current U.S. sales levels, 8 points of share represents more than 1.3 million vehicles annually, or nearly six assembly plants.

Mr. Wagoner could get some help from consumers. He and other industry executives said U.S. vehicle sales appear to be stronger in March than in February.

GM's accelerating decline is rippling throughout the manufacturing economy, particularly in the industrial Midwest, where hundreds of large and small companies depend on the company.

GM production cuts have hammered profitability at several big U.S. auto-parts makers, particularly former GM unit Delphi Corp. Investors yesterday also sold shares of Ford Motor Co. and DaimlerChrysler AG. In response, Ford reaffirmed its previous profit guidance for the year, but warned it would be at the low end of the range of $1.75 to $1.95 a share.

In its warning, GM said it expects to incur a loss of $1.50 a share in the first quarter of 2005, excluding special items, compared with a previous estimate of break-even or better. The company also lowered its full-year expectation to $1 to $2 a share from a previous estimate of $4 to $5 a share, and said that instead of generating $2 billion in cash this year, as previously forecast, it will burn $2 billion in cash. In 2004, GM reported net income of $3.7 billion, or $6.51 a share.
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