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GM Announces $323 Million First Quarter Loss

Prof. Peter Morici - 4/20/2006

Today, General Motors announced it lost $323 million during the first quarter of 2006, as compared to a $1.3 billion the first quarter of 2005. GM automotive operations lost $721 million. GM's poor competitive position in the North American market again was the primary problem. North American operations lost $946 million, as compared to $1.5 billion last year.

This is a significant improvement over the first quarter of last year. GM has been shifting production to higher valued products--vehicles with more features and higher sticker prices. Some of its new offerings have been well received.

Despite assurances from Rick Wagoner and Robert Lutz that GM is fast correcting its path, the company's situation remains perilous. Consider the following first quarter statistics for North American production and sales, published by the independent Ward's Automotive Group.

Production: 2005 (1 quarter) - 1,115,549; 2006 - 1,186,240
Sales: 2005 (1 quarter) - 1,003,041; 2006 - 950,837

GM is making more vehicles and selling fewer of them. GM's market share fell from 25.2 percent to 23.7 percent. This is hardly a picture of health.

With gas prices rising rapidly, GM's strategy of loading up vehicles with more horsepower and features may prove difficult to sustain.

GM needs to further reduce its labor costs and bring those into line with Toyota and other Asian companies operating in North America, better align its brands and offerings to recognizable market segments, and reduce its famously bureaucratic marketing and product design.

In recent weeks, GM has mounted a concerted publications relations campaign to sway the investment community. Nevertheless, GM continues to lose money at a time of robust economic growth.

The economy is expected to slow the second half of this year. Coupled with higher gas prices, that creates a very challenging environment for GM.