NEW YORK – General Motors Corp. (GM) Wednesday warned its 2005 earnings will be as much as 80 percent below its prior forecast due to slumping North American auto sales, sending its shares down 13 percent to a nearly 13-year low.
The warning from the world's largest carmaker, whose once dominant position in its key U.S. market has fallen to less than a 25 percent share on a steady loss to foreign automakers, spurred Standard & Poor's (search) to caution that it could downgrade GM's debt to "junk" status at any time, which would likely raise its borrowing costs.
GM also said it will post a loss in the first quarter, compared with its prior forecast of breaking even or better, due to significant losses in North America.
The automaker's top money-makers in the United States, SUVs and pickup trucks, have been losing out to newer offerings from competitors.
"GM North America is, simply put, our 800-pound gorilla, and today's announcement shows how important it is that we get this business right," Chairman and Chief Executive Rick Wagoner (search) told analysts and reporters on a conference call.
GM's stock sank as low as $29.00, its lowest level since October 1992, a year when GM lost $23.2 billion and nearly went bankrupt. GM's outlook, which would mark its worst performance since 1992, drove other auto stocks lower, with Ford Motor Co. (F) down about 4 percent.
GM said it now sees full-year earnings of about $1.00 to $2.00 per share, excluding special items, down from its previous target of $4.00 to $5.00 a share.
In 2004 GM earned $3.6 billion, or $6.40 a share, from continuing operations, including $2.9 billion from its financial services unit GMAC.
GM also said it now expects a first-quarter loss of about $1.50 per share, excluding any special items.
GM's U.S. sales tumbled more than 6 percent during the first two months this year, and its U.S. market share fell to a record low of about 24.4 percent in February despite high incentives.
David Cole, director of the Center for Automotive Research, said he expects similar difficulties for other companies in the automotive industry. "This will not be the only company where you're going to see this kind of comment," he said.
Automotive parts company Delphi Corp., GM's largest supplier, said earlier this month that it may have to restate earnings from 2001 onwards due to improper accounting. Parts maker Visteon Corp., which has continuously lost money since it was spun off from Ford in 2000, last week agreed to an aid package from its former parent company.
Merrill Lynch cut its rating on GM to "sell" from "neutral."
Over the last four months, GM has said it will close a van plant in Baltimore, and cease production at a truck plant in New Jersey and a car assembly plant in Michigan. It has also said it would cut production of new cars and trucks in North American by more than 300,000 vehicles through the first six months of this year.
"We have to do even more on the cost side," GM Chief Financial Officer John Devine said on the conference call, citing rising health-care costs in particular.
GM, the largest private provider of health care in the United States, expects its U.S. health care costs for more than 1 million workers, retirees and their families to rise to $5.6 billion this year, up from $5.2 billion last year.
"There's no easy answers there. I don't have any silver bullets on health care," Devine said:
Operating cash flow this year will reverse by $4 billion, going from a projected $2 billion positive inflow to a negative $2 billion, GM said. That excludes GM's $2 billion settlement with Italian automaker Fiat and European restructuring costs.
S&P affirmed its long-term ratings on GM and General Motors Acceptance Corp. at "BBB-minus," one step above junk status, and their short-term "A-3" ratings.
But it said in a statement; "We now view the rating as tenuous. The rating could be lowered at any point if we came to doubt that GM was on a trajectory to improving its financial performance to more satisfactory levels in 2006 and beyond."
Last year, GM's total interest expense from its debt burden rose to $11.90 billion from $9.46 billion, as cuts in its debt rating resulted in wider bond spreads, and on rising debt levels. GM and GMAC had a total outstanding debt of $301 billion at the end of last year.