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GM's Losses for 2005 Total $8.6 Billion

Posted on: Friday, 27 January 2006, 06:00 CST

By Sharon Silke Carty

DETROIT -- A bad year ended even worse for General Motors, which posted a $4.8 billion loss in the fourth quarter, bringing total 2005 losses to $8.6 billion, the automaker said Monday.

Lower North American production, a drop in sales of high-profit SUVs, and higher health care, material and labor costs drove the losses.

"2005 was one of the most difficult years in GM's history," CEO Rick Wagoner said. "It was a year in which two significant fundamental weaknesses in our North American operations were fully exposed -- our huge legacy costs and our inability to adjust structural costs in line with falling revenue."

To underscore the importance of the North American market: GM's worldwide sales were 9.2 million vehicles, making 2005 its second-best year globally. It increased sales in every region but its home market. North American sales were down 3.1%.

The $8.6 billion annual loss is not a record-breaking figure for GM. In 1992, it lost $23.5 billion.

While GM isn't giving earnings estimates anymore, Chief Financial Office Fritz Henderson said the company expects to see improved financial results in 2006 and 2007. "There really is no other choice," he said.

GM says it expects to cut $4 billion in manufacturing costs by the end of the year and should save $1 billion in health care costs once an agreement with the United Auto Workers on retiree benefits is finalized.

The fourth-quarter numbers were a dramatic swing from 2004, although revenue was only slightly lower, $51.2 billion vs. $51.4 billion in the quarter a year ago.

Weighed down by North America, GM said automotive operations overall reported an adjusted loss of $1.5 billion in the fourth quarter, compared with adjusted earnings of $268 million in the year-ago period.

The automaker was forced to slash SUV production in 2005. Dealers, faced with mounting SUV inventories in late 2004, demanded GM stop producing vehicles they couldn't sell. Automakers post their profit on vehicles when they are produced and shipped to dealers, not when they are actually sold to consumers.

In the end, sales of SUVs and large luxury cars cost GM $2.2 billion in 2005. Henderson said it highlights "the need going into 2006 to improve the profitability of our overall portfolio and not leave ourselves so reliant on ... a small number of vehicles."

GM also is attempting to back off using incentives to sell cars and trucks. It has lowered sticker prices almost across the board to bring them more in line with what customers actually pay.

But estimates are that GM's January sales will be down 5% to 10%. John Murphy, a Merrill Lynch analyst, says domestic automakers need to stick through a decline in sales as customers get used to the new pricing. "If there is newfound pricing discipline, the whole industry will benefit," he wrote recently.

(c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.

Source: USA TODAY

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