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General Motors in crisis as its car sales plummet
By : Tracey Boles Chief Reporter October 30, 2005
GENERAL Motors will this week reveal that sales collapsed in October, taking its US market share to a 25-year low and fuelling fresh fears that the world’s largest carmaker is heading towards bankruptcy. Its US sales dropped 26% compared with the same month last year, according to early estimates, putting its monthly US market share at 20.5% – the lowest since at least 1980.
The figures were compiled by Deutsche Bank analyst Rod Lache. Goldman Sachs also believes October will be the worst month for US car and truck sales in years. GM – whose brands include Cadillac, Pontiac and Hummer – is confronting its biggest financial crisis for 13 years. A bankruptcy filing by the Detroit carmaker would spell the end of an era for US industry and change global car manufacturing for ever.
Last week, it emerged that Toyota is poised to unseat GM as the world’s biggest carmaker measured by units produced. The Japanese giant, which already dwarfs the US carmaker in profitability and value, intends to ramp up production next year.
The GM sales slump – blamed on high fuel prices, unease about the US economy and the end of special summer offers for its staff -– is the latest in a stream of bad news to hit GM, all sparking market fears that the carmaker could go bankrupt. General Motors has denied it is drawing up any plans to declare Chapter 11 bankruptcy. Last week, America’s Securities and Exchange Commission (SEC) intensified an inquiry into how GM accounts for its pensions and employee benefits.
So far this year, GM has posted record losses of $3.8bn (£2.1bn, E3.2bn) and its crucial credit ratings have been reduced to junk by the main rating agencies. The company is burdened by $90bn in pension obligations and a $77bn healthcare plan. Two weeks ago, it was forced to renegotiate the terms of its healthcare plan with the United Autoworkers Union. It managed to agree a deal that will cut $3bn a year from costs.
On Friday, General Motors recalled 106,000 sports utility vehicles (SUVs) to fix a door latch. Sales of the SUVs have been falling faster than those of other vehicles as fuel prices remain high.
The spectre of bankruptcy at GM loomed again last week as the markets digested the news that the SEC had issued subpoenas related to GM’s financial reporting for pension and other post-employment benefits, and to transactions and obligations between the company and auto-parts supplier Delphi, which itself entered Chapter 11 earlier this month.
Until now, the SEC inquiry, which is also looking at other companies including rival carmaker Ford, has been informal. GM is Delphi’s former parent and its biggest customer. The carmaker may be responsible for $12bn in benefits at Delphi because of guarantees it offered when it spun off its former parts arm in 1999.
Analysts have warned that Delphi’s Chapter 11 filing under the weight of high wage, healthcare and pension costs, may foreshadow a similar drastic move by the world’s largest auto maker, whose labour woes could be compounded by the crisis at its supplier.
Bank of America analyst Ron Tadross said earlier this month: “It is our view that bankruptcy protection for GM is increasingly looking like a reasonable way to properly address the company’s retirement liabilities and job security benefits.” Steve Miller, chairman and chief executive of Delphi, said last week that unless Delphi’s bankruptcy process goes smoothly, it could “fatally wound” GM.
GM’s North American operations have been in crisis for some time, with commentators accusing it of spotting consumer trends too late. It has lagged Toyota in developing fashionable petrol-electric hybrids and launched the retro Chevrolet HHR after sales for retro vehicles peaked at other carmakers.
Last week the Detroit car company revealed plans to launch several crossover models – vehicles that have the interior space of SUVs but are built on the car rather than truck chassis. But the new models in the Buick, GMC and Saturn brands will have to compete with the crossover models that Toyota, Ford and DaimlerChrysler already have on the market.
In another desperate bid to get the ailing carmaker back on track, chief executive Richard Wagoner is seeking a buyer for all or part of the General Motors Acceptance Corporation, its finance arm. But there are fears the SEC investigation will hinder the sale. GM is hurting the most among the US carmakers but Ford and the Chrysler arm of DaimlerChrysler all experienced dismal sales performance last month.
http://www.thebusinessonline.com/St...2E-D07EB5AA1CEE
By : Tracey Boles Chief Reporter October 30, 2005
GENERAL Motors will this week reveal that sales collapsed in October, taking its US market share to a 25-year low and fuelling fresh fears that the world’s largest carmaker is heading towards bankruptcy. Its US sales dropped 26% compared with the same month last year, according to early estimates, putting its monthly US market share at 20.5% – the lowest since at least 1980.
The figures were compiled by Deutsche Bank analyst Rod Lache. Goldman Sachs also believes October will be the worst month for US car and truck sales in years. GM – whose brands include Cadillac, Pontiac and Hummer – is confronting its biggest financial crisis for 13 years. A bankruptcy filing by the Detroit carmaker would spell the end of an era for US industry and change global car manufacturing for ever.
Last week, it emerged that Toyota is poised to unseat GM as the world’s biggest carmaker measured by units produced. The Japanese giant, which already dwarfs the US carmaker in profitability and value, intends to ramp up production next year.
The GM sales slump – blamed on high fuel prices, unease about the US economy and the end of special summer offers for its staff -– is the latest in a stream of bad news to hit GM, all sparking market fears that the carmaker could go bankrupt. General Motors has denied it is drawing up any plans to declare Chapter 11 bankruptcy. Last week, America’s Securities and Exchange Commission (SEC) intensified an inquiry into how GM accounts for its pensions and employee benefits.
So far this year, GM has posted record losses of $3.8bn (£2.1bn, E3.2bn) and its crucial credit ratings have been reduced to junk by the main rating agencies. The company is burdened by $90bn in pension obligations and a $77bn healthcare plan. Two weeks ago, it was forced to renegotiate the terms of its healthcare plan with the United Autoworkers Union. It managed to agree a deal that will cut $3bn a year from costs.
On Friday, General Motors recalled 106,000 sports utility vehicles (SUVs) to fix a door latch. Sales of the SUVs have been falling faster than those of other vehicles as fuel prices remain high.
The spectre of bankruptcy at GM loomed again last week as the markets digested the news that the SEC had issued subpoenas related to GM’s financial reporting for pension and other post-employment benefits, and to transactions and obligations between the company and auto-parts supplier Delphi, which itself entered Chapter 11 earlier this month.
Until now, the SEC inquiry, which is also looking at other companies including rival carmaker Ford, has been informal. GM is Delphi’s former parent and its biggest customer. The carmaker may be responsible for $12bn in benefits at Delphi because of guarantees it offered when it spun off its former parts arm in 1999.
Analysts have warned that Delphi’s Chapter 11 filing under the weight of high wage, healthcare and pension costs, may foreshadow a similar drastic move by the world’s largest auto maker, whose labour woes could be compounded by the crisis at its supplier.
Bank of America analyst Ron Tadross said earlier this month: “It is our view that bankruptcy protection for GM is increasingly looking like a reasonable way to properly address the company’s retirement liabilities and job security benefits.” Steve Miller, chairman and chief executive of Delphi, said last week that unless Delphi’s bankruptcy process goes smoothly, it could “fatally wound” GM.
GM’s North American operations have been in crisis for some time, with commentators accusing it of spotting consumer trends too late. It has lagged Toyota in developing fashionable petrol-electric hybrids and launched the retro Chevrolet HHR after sales for retro vehicles peaked at other carmakers.
Last week the Detroit car company revealed plans to launch several crossover models – vehicles that have the interior space of SUVs but are built on the car rather than truck chassis. But the new models in the Buick, GMC and Saturn brands will have to compete with the crossover models that Toyota, Ford and DaimlerChrysler already have on the market.
In another desperate bid to get the ailing carmaker back on track, chief executive Richard Wagoner is seeking a buyer for all or part of the General Motors Acceptance Corporation, its finance arm. But there are fears the SEC investigation will hinder the sale. GM is hurting the most among the US carmakers but Ford and the Chrysler arm of DaimlerChrysler all experienced dismal sales performance last month.
http://www.thebusinessonline.com/St...2E-D07EB5AA1CEE
Very sad news for American automakers.