DETROIT – General Motors Corp. (GM) next week will post its steepest quarterly loss since 1992, when the industrial icon tipped close to bankruptcy, with its core automotive unit expected to lose more than $1 billion, analysts said.
The Detroit automaker shocked the markets last month when it slashed its earnings outlook to a loss of $1.50 per share, down sharply from a previous forecast of break-even or better. In the year-ago quarter, GM had a profit of $2.25 per share.
The earnings warning from the world's largest automaker, due to falling sales and rising health-care costs, sent GM shaatus at any time.
"Earnings disasters are the order of the day, and they're apparently as much of a surprise to management as they are to the analysts," Burnham Securities analyst David Healy said in a research report this week.
Ford Motor Co. (F) chopped its 2005 earnings forecast last week, the second time in less than a month that the third-largest automaker revised its outlook, due to weaker sales and soaring costs.
Healy said he expects GM's North American automotive operations to lose about $1.35 billion before taxes in the first quarter, down from a pretax profit of $586 million a year earlier.
GM is scheduled to report its earnings on Tuesday, April 19, a day before Ford releases results.
Restructuring of GM's European operations, including the buyout of up to 12,000 jobs, and the costs of idling a vehicle assembly plant in Michigan are expected to result in a one-time charge to earnings of up to $1 billion, analysts said.
The results will be closely scrutinized for any risks to 2005 earnings targets, and for strategic changes by GM Chief Executive Rick Wagoner (search), who took direct control of the North American automotive operations last month, analysts said.
This week, the head of the United Auto Workers (search) union questioned why it would renegotiate its contract with GM, but added that it would work with the automaker within the framework of the pact to help cut health-care costs.
The comments, following a closed-door meeting with Wagoner and other GM executives, curtailed some speculation that the automaker could reopen its UAW contract to make some significant cost-cutting moves.
"In our view, the deterioration in GM's financial condition is not yet serious enough to scare the rank-and-file at the union," Merrill Lynch analyst John Casesa wrote in a report on Friday.
GM's falling U.S. sales led it to slash its first-quarter production by 12 percent in North America, hurting profit by about $1 billion, Healy said.
Particularly troubling is the drop in sales and production of large sport utility vehicles, GM's cash cows, which the automaker blamed on an aging lineup rather than higher gas prices.
The costly first-quarter production cuts for the big SUVs have only kept pace with a drop in sales, and GM may have to cut production further later this year, Lehman Brothers said.
On the other hand, GM and investors can look forward to next year, when the automaker will roll out its new large SUVs.
"2005 is likely to be the worst GM will see for a while," Prudential Securities said in a report on Thursday. Prudential upgraded its recommendation on GM's stock to "overweight" from "neutral weight."