Tough North America market hurts GM

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Quote »Tough North America market hurts GMWorld's biggest car maker cuts Q1, FY05 earnings view By Michael Baron, MarketWatchLast Update: 7:55 AM ET March 16, 2005 NEW YORK (MarketWatch) -- General Motors lowered its earnings outlook for the first quarter and full year Wednesday to reflect weak sales and production volumes in North America, a tougher pricing environment and a more car-based sales mix. The stock (GM: news, chart, profile) fell $1.72, or 5.1 percent, to $32 on Instinet volume of 31,000. "Clearly we have significant challenges in North America," said Rick Wagoner, the company's chairman and CEO. "The rest of our automotive businesses, and GMAC, are running in line with, or ahead of, our expectations."He continued: "But North America is our biggest business, and the key driver of automotive earnings and cash flow. So it's important that we get this business right."The Dow component now sees a loss before items of about $1.50 per share in the first quarter, well below its prior target of breakeven results or better. For the full year, the world's largest car maker now anticipates earnings before items of $1 to $2 per share, short of a previous view for a profit of $4 to $5 per share. The company also forecast negative operating cash flow of about $2 billion in 2005, before the effects of the Fiat settlement and GM Europe's restructuring. Its previous target was positive cash flow of $2 billion for the year. GM said its prior first-quarter outlook was based on North American vehicle-production volumes 1.25 million vehicles, and that its new, lower view reflects a reduction of about 70,000 vehicles. CFO John Devine added that the company has made good progress in reducing costs over the past several years but that the performance in North America has reinforced its need "to do much more, particularly in the area of health care." The company added that it plans to record a charge of $886 million, or $1.56 per share, in the fourth quarter of 2004 related to its settlement with Fiat S.p.A.GM also said it's adjusting its financial information for each of the four quarters of 2004 to reallocate asset valuation at GMAC's residential mortgage businesses and revise accounting for Medicare legislation. The restatement won't impact its total net income or earnings per share for the year. Michael Baron is a reporter for MarketWatch in New York.