AUTOMOBILE INDUSTRY GM lowers earnings projection, citing health-care costs

The company will cut 12,000 jobs in Europe.
KNIGHT RIDDER NEWSPAPERS
DETROIT -- Kicking off what promises to be a dismal round of automotive earnings reports, General Motors Corp. Thursday laid out a range of problems that have no ready solutions, from the slowdown in auto-sales growth in China and record-high steel costs to intractable concerns like U.S. health-care costs and tumbling vehicle prices in Europe.
GM earned a little less than Wall Street expected from July to September, and lowered its earnings projections for the year. GM's shares fell $2.46, or 6 percent, leading the Dow Jones Industrial Average to a 107-point drop and bringing down the value of every other automotive stock from Ford Motor Co. to Federal Mogul Corp.
"We have to move more aggressively to address some frankly chronic, but difficult to address, cost issues," said chairman and chief executive Rick Wagoner, who, in a sign of the seriousness of the situation, personally spoke to analysts and reporters in a conference call.
Chief among these chronic problems are health-care inflation in the United States and continued losses in Europe. GM took the first step toward restoring profits in Europe Thursday, announcing 12,000 job cuts.
Taking action
GM announced it would eliminate 20 percent of its European work force over the next year or so, which it hopes will save $600 million a year. But that isn't enough to start making money there, and the company can't even talk about when it might have a plan to end five years of red ink.
And the company has a range of ideas for how to slow the double-digit inflation in health care, but none will fix it. The problem is bigger than GM -- it squeezes all U.S. companies -- but a government solution could be 10 years out.
Some good news
For the three months that just ended, the news was not all bad: GM gained market share in all four regions of the globe, earnings rose 3.5 percent, and the still-growing GMAC finance unit appears capable of consistently delivering profits of $2.5 billion a year.
GM posted a net profit of $440 million, or 78 cents a share, up from $425 million in the same period last year. Excluding last year's loss by Hughes Electronics, as most investors would because the unit has been sold, earnings fell by 2 cents per share.
The results fell at the bottom of the expectations set out by GM -- which has earned a reputation of earning more than it promises.
Now the company, which raised its outlook for the year only three months ago -- to $7 a share from a range of $6 to $6.50 a share -- turned back to its original goals. And the prospects of earning $10 a share by 2005 or 2006 seem to have vanished like a dream.
The company will set out its 2005 expectations in January, said chief financial officer John Devine.
The debt-rating agency Standard & amp; Poor's Corp. cut GM's credit rating to within a notch of "junk" status.
That is the same level as Ford's rating, which S & amp;P affirmed.
In a conference call, S & amp;P analyst Scott Sprinzen added that he is "skeptical" about Ford's prospects for meeting its goal of earning $7 billion before taxes by 2006.