GM Loses $4.9B in Q4, $8.6B in ‘05

January 26, 2006

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.


By the numbers


GM reported it lost $1.2 billion, or $2.09 per diluted share in the fourth quarter of 2005, excluding special items, compared to a profit of $726 million, or $1.28 per share in the same period a year ago. Revenue was $51.2 billion compared to $51.4 billion a year ago.


General Motors North America, the core business, reported an adjusted loss of $1.5 billion, compared to adjusted earnings of $449 million in the year-ago period. The loss in the fourth quarter of 2005 was primarily attributable to lower production of full-sized sport-utility vehicles due to the start-up of production of GM’s new 2007 SUVs, increased healthcare costs, and higher marketing and advertising spending.


Special items or charges involving the GM-UAW jobs bank for idled workers and for benefits guaranteed Delphi workers widened the loss to $4.8 billion, or $8.45 per diluted share in the fourth quarter of 2005, compared to a loss of $99 million, or 18 cents per share in the fourth quarter of 2004.


For the full year, GM reported a loss of $8.6 billion, or $15.13 per share for 2005, including special items, compared to net income of $2.8 billion, or $4.92 per share in the year-ago period. Revenue was $192.6 billion in 2005, compared to $193.5 billion in 2004. In addition, GM’s cash reserves declined by more than $2.8 billion in 2005 or nearly $8 million per day.


Henderson said GM North America reported an adjusted loss of $5.6 billion in 2005, compared to adjusted earnings of $1.1 billion in 2004. The loss reflected a weaker sales mix, lower production volumes stemming from a significant reduction in dealer inventories, and lower market share as well as increased material costs, continuing high healthcare costs and increased spending on marketing and advertising, Henderson said.  On the positive side, GM's pension funds are now overfunded, he said.


For the year, GM’s automotive operations reported an adjusted loss of $5.3 billion, compared to adjusted earnings of $1.2 billion in 2004.  The decline was principally driven by large losses in North America, partially offset by improved results in Europe and in the Latin America, Africa and Middle East region.


GM Europe, while cutting its losses in half, was still in the red for the sixth consecutive year but Wagoner said better days are ahead. “Our European turnaround plan remains on track and we expect to see more progress in 2006,” Wagoner said.


Earnings from GM's critical Asia Pacific operations also dropped by 28 percent to $524 million in 2005. The changing mix in China and troubles in Australia accounted for most of the decline, Henderson said.


General Motors Acceptance Corp. reported it earned $2.8 billion in 2005, down only slightly from the $2.9 billion it generated in 2004. In the fourth quarter of 2005, GMAC earned $614 million, compared to $683 million in the year-ago period. 


However, the impact of GM's declining credit rating is beginning to take its toll on GMAC, which saw its borrowing costs jump significantly in the fourth quarter.


Henderson said GM is still trying to find a partner for GMAC that could improve the unit’s credit rating, which has been reduced to below investment grade. However, he also said GMAC was prepared to continue operating within GM’s orbit without a partner.

The Car Connection
See the winners »
The Car Connection
Commenting is closed for this article
Ratings and Reviews
Rate and review your car for The Car Connection
Review your car
The Car Connection Daily Headlines
I agree to receive emails from The Car Connection. I understand that I can unsubscribe at any time. Privacy Policy.
Thank you! Please check your email for confirmation.