Industry Report: Jan. 30, 2006

January 30, 2006

 

GM Loses $4.9B in Q4, $8.6B in '05

General Motors produced another awful financial surprise Thursday by announcing it lost $4.9 billion during the fourth quarter and more than $8.6 billion for all of 2005.

The company says the wide losses were due to the heavy cost of the company's contracts with the United Auto Workers and the need to bail out the bankrupt Delphi Corp.

Richard Wagoner, GM's chairman and chief executive officer, said, "Our results were dramatically and adversely affected by charges for restructuring and matters associated with Delphi Corp.'s Chapter 11 filing," Wagoner said.  It "was one of the most difficult years in GM's history," he said.

"In order to improve financial results in 2006 and 2007, we are moving quickly to implement several important actions that will address these weaknesses inNorth America," he added.

However, Wagoner and Fritz Henderson, GM's new chief financial officer, said the pace of the restructuring will depend on talks with the UAW, which must sign off on any plan that includes worker buyouts or early retirement.

The fourth-quarter financial report was worse than most analysts expected and is certain to revive talk about a bankruptcy filing by the giant automaker.

GM Loses $4.9B in Q4, $8.6B in '05 (1/26/2006)
Staggering numbers underscore gravity of restructuring.

 

Bush: DetroitNeeds "Relevant" Cars

Financial problems at Detroit's Big Two may have some clamoring for government help for the companies, but the idea hasn't won President Bush over. In an interview with The Wall Street Journal, the President said that the current problems at GM and Ford needed to be worked out by the marketplace: "I think it's very important for the market to function," the President told the paper, adding that Detroit's automakers needed to focus on building "a product that's relevant" to today's gas prices and technological needs. While the Administration has discussed new fuel technologies with automakers, it has not been approached for financial assistance, Bush noted: …"I haven't been asked by any automobile manufacturer about a bailout," the President told the Journal. He added that dissolving pension obligations would not amount to corporate responsibility.

 

UAW, DCX Talking Healthcare

The United Auto Workers has granted Ford Motor Co. and General Motors Corp. concessions on the healthcare benefits for union workers, albeit reluctantly. But when it comes to DaimlerChrysler, the signals for a deal on healthcare are altogether more ambiguous.

Both Dieter Zetsche, DaimlerChrysler chief executive, and Tom LaSorda, Chrysler Group CEO, have indicated they are confident the union is prepared to approve healthcare concessions similar to those already delivered to GM and Ford. 

However, UAW president Ron Gettelfinger, who likes to say the devil is in the details, is a master at drawing out negotiations, particularly when there is no advantage to the union in a quick settlement. He has noted there are subtle differences in the so-called pattern contracts at DaimlerChrysler, General Motors and Ford. For one thing, going back to the concessions days in the early 1980s, Chrysler always had an escape clause that allowed the company to shift some costs in some plans to employees if the company's overall bill increased too quickly, which it did last year.

Thus, Gettelfinger noted recently that the union had already adjusted healthcare plans at Chrysler. Gettelfinger also said the concessions, while painful for the union, were necessary because of U.S. market share losses at Ford and GM. Both automakers saw their U.S. sales drop 4 percent in 2005.

"It was a long year," Gettelfinger said in a speech to the Automotive News World Congress. "It was probably one of the most painful, excruciating decisions that we ever had to deal with as a union."

UAW, DCX Talking Healthcare (1/26/2006)
But there's no guarantee on a deal.

 

Oil Prices Up, Sales Off in '06

Sales of new vehicles in January don't look very promising, according to a new survey by the Power Information Network maintained by J.D. Power & Associates of Westlake Village, Calif.

In addition, gasoline prices are beginning to move upwards again, putting new pressure on motorists and manufacturers who had been counting on relatively stable oil prices to boost consumer confidence and sales of new vehicles, raising the possibility carmakers will be unable to avoid heavy-duty incentives as the year progresses.

The report from the Power Information Network estimated that new-vehicle retail sales were down 11 percent through the first 15 days of January when compared to the same time period a year ago.

GM's retail sales when compared to early January 2005 dropped 28 percent while Ford Motor Co.'s fell 25 percent in the first 15 days of January. DaimlerChrysler sales were down 13 percent when compared to the same period in 2005. Domestic manufacturers generally tend to do better once the fleet sales numbers are added to the mix.

Oil Prices Up, Sales Off in '06 (1/26/2006)
Big domestic declines ring in the new year.

 

Cadillac Papering Super Bowl XL

Cadillac, one of the General Motors' biggest success stories in recent years, is gunning for its fifth consecutive year of sales increases.

Jim Taylor, Cadillac's general manager, said GM's luxury division is confident it can boost sales again in 2006.

For one thing, Cadillac is counting on the introduction of the new 2007 Cadillac Escalade, which is part of the fleet of new SUVs that GM is counting on to help arrest the slide in the company's profitability and market share, he said. The Escalade represents Phase II of the Cadillac renaissance, Taylor said, and will come to market plenty of bling and plenty of good-old fashioned hype when it goes on sale next month.

To get the buzz around Escalade rolling, Cadillac is planning to use Super Bowl XL to kick off Escalade sales, Taylor said. The first television spot for the 2007 Escalade will run during the second quarter of Super Bowl telecast, which has become an integral part of Cadillac's marketing effort in recent years, Taylor said.

Leo Burnett Detroit recruited experts from the fashion world to help create the 60-second spot, "Chrome Couture," which emphasizes the Escalade's unique appeal as pop-culture icon.

The agency created a fashion show for the commercial, in which the Escalade rolls out as models get their hair and makeup done and dresses tailored at the last minute, while fashionistas, paparazzi and celebrities pack in around the catwalk.

Cadillac Papering Super Bowl XL (1/26/2006)
New Escalade will be focus of Caddy's NFL celebration.

 

Ford Shows E85 Escape Hybrid

As Ford promised earlier in the week in its Way Forward restructuring, it's looking to ethanol power to "green" up its vehicle fleet. On Wednesday, at theWashington, D.C., auto show, Ford showed an Escape Hybrid that uses ethanol-blend fuel to further wean itself from gasoline. Ford says it's the first company to develop a hybrid prototype that can run on an ethanol-gasoline blend. In earlier announcements, Ford has promised to build 250,000 hybrid vehicles a year by the end of the decade, and 250,000 ethanol-capable vehicles in 2006. No plans for production exist, but the conversion to E85 fuel would not be difficult if gas prices were to skyrocket.

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