Cost-Slashing Imminent After 90% GM Profits Plummet

07 May 2007

DETROIT: The fiscal fragility of General Motors, the globe's top-selling carmaker (until last month when it was overtaken by Toyota), was highlighted Friday by a 90% plunge in first quarter net income to $62 million (€45.63m; £31.1m), versus $602 million a year earlier.

That GM, the globe's fifth largest corporation by sales [Forbes magazine, 29-Mar-07], remains in the black at all is solely due to the hitherto hefty profits accruing from a 49% retained stake in its former money-lending unit GMAC Financial Services.

But GMAC posted an eye-watering Q1 loss, triggered by increasing defaults in the subprime (high-risk) home loans market - a fact that will not be lost on those who sense early tremors of a seismic shift in the US economy.

The automaker's first-quarter net earnings by region, expressed year-on-year in $ millions (Q1 2006 figures in parentheses) were:

  1. North America $85 deficit ($251 deficit)
  2. Europe $42 ($131 deficit)
  3. Asia/Pacific $150 ($97)
  4. Latin America $201 ($67)
Cfo Frederick "Fritz" Henderson (pictured above) did not mince his words, stating that GM is "not generating the return we expect" in North America. He especially fingered labor costs and associated overheads such as pensions and medical cover.

"That is first and foremost in our minds. As we go into bargaining [with the United Auto Workers union], we've had a high sense of urgency, we continue to have a high sense of urgency."

That sense of urgency is echoed in Wall Street. Says Standard & Poor's auto analyst Efraim Levy: "These are going to be historic negotiations. There is a need for unprecedented concessions because of the dire situation the Big Three are in right now."

Data sourced from Wall Street Journal Online. additional content by WARC staff