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GM shocks with slashed forecast

A Cadillac CTS is shown outside the General Motors Orion Assembly plant in Orion Township, Michigan on Wednesday. General Motors Corp, the world's biggest auto maker, slashed its earnings forecast for this year by more than half on Wednesday and predicted a first-quarter loss. PHOTO: AP

Faced with weakening sales in North America and rising costs, General Motors greatly reduced its financial forecast for the year on Wednesday and warned that it expected to lose money in the first quarter.

The news stunned Wall Street and GM's stock fell more than 13 percent. Standard & Poor's, meanwhile, revised its outlook on GM's debt to negative and said that it could reduce the company's bond rating to junk status.

GM, the world's largest automaker, attributed its worsening financial state to a number of external and internal factors, including rising health care costs.

"I don't have any silver bullets on health care," GM's chief financial officer, John Devine, said in a conference call with analysts and investors on Wednesday. "There's no easy answers there, but clearly I think the weakening profitability this year is focused on our need to make progress on health care."

While health care expenses for workers and retirees, which will cost GM US$5.6 billion in cash this year, are a key factor in dragging down the company's profitability, slow sales in its critical North American operations have also taken a toll.

Bumpy road * For the first quarter the company estimates a loss of US$1.50 per share, compared with earlier expectations that it would at least break even. * For the full year, the company cut its forecast to US$1 to US$2 a share from US$4 to US$5 a share * The company's stock fell more than 13 percent on the news * S&P also revised its outlook on GM's debt to negative

GM sales fell 12.6 percent last month compared with a year earlier, and the company said it would lower first-quarter vehicle production by 12 percent compared to the first quarter last year.

"GM North America is, simply put, our 800-pound gorilla," Rick Wagoner, the company's chairman and chief executive, said on Wednesday.

For the first quarter, GM said it expected a loss of US$1.50 a share, compared with an earlier estimate that it would break even or post a profit. For the year, GM slashed its earnings forecast to US$1 to US$2 a share from US$4 to US$5 a share.

On Wednesday, the company also restated its earnings for last year to reflect a one-time US$886 million charge from its settlement with Fiat. In the settlement, GM ended its industrial alliance with the Italian automaker. As part of that alliance, Fiat had been granted the option to sell its auto business to GM, a move that would have put GM in further financial distress.

As a result of the Fiat charge, GM said it had posted a loss in the fourth quarter of last year instead of a slim profit.
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