AUTO INDUSTRY GM reiterates forecast, warns of lower earnings

Standard & amp; Poor's said it expected an erosion of GM's 2005 earnings because of continued sales weakness.
DETROIT (AP) -- General Motors Corp., the world's biggest automaker, reiterated Thursday its earnings expectations for 2004 but warned of lower profits this year, in part because of higher health care expenses and lower anticipated results at its finance arm.
GM said it expects 2004 earnings to be in line with its previous guidance of $6 to $6.50 per share, excluding special items. The company said fourth-quarter results, scheduled to be reported Wednesday, will include several special items, one of which is a write-off of GM's remaining $220 million investment in Fiat Auto Holdings. The net result of all special items will be slightly favorable for reported earnings, GM said.
Analysts surveyed by Thomson First Call expect full-year 2004 earnings of $6.31.
The automaker has set a 2005 earnings target of $4 to $5 per share, excluding special items. The current Wall Street consensus is $4.78.
"We're following a roadmap we believe will deliver strong results," chairman and chief executive Rick Wagoner said in a statement.
Erosion expectation
GM's forecast echoes a recent report from Standard & amp; Poor's, which said it expected an erosion of GM's 2005 earnings because of continued sales weakness and cost pressures in North America, among other considerations.
Wagoner said the automaker had made consistent progress in streamlining operations, improving productivity and global expansion.
"We plan to leverage these advantages going forward," he said.
GM said it hasn't backed off a goal of attaining annual earnings of $10 per share, but company executives have acknowledged the target has become more difficult given rising health care and pensions costs and other factors.
Vice chairman and chief financial officer John Devine said the $10 goal could be achieved as early as 2007 because of a strengthening product portfolio in North America, improved performance in Europe and an expected strengthening of the market in China.
Devine said 2004 results reflect a strong performance from financial services, record automotive profitability in the Asia-Pacific region and a return to profitability in the Latin American/Africa/Mid-East region.
Significant contributor
GM's financial-services subsidiary, General Motors Acceptance Corp., is expected to be a significant contributor to GM's performance again in 2005, but not to the extent of 2004. GMAC is forecast to generate net income of at least $2.5 billion in 2005, likely down from record profits in 2004 as a result of higher interest rates.
The 2005 net income target for GM North America is $500 million, including an expected $1 billion increase in U.S. health care expenses. The ongoing restructuring at GM Europe is expected to result in reduced financial losses. The forecast loss next year: $500 million, excluding restructuring charges.
GM also expects to post net income of $600 million in the Asia-Pacific region next year and $100 million at GM Latin America/Africa/Mid-East.
The company expects its sustainable tax rate in 2005 to be approximately 15 percent, compared with approximately 21 percent in 2004.
GM shares fell $1.07, or 2.79 percent, to close at $37.32 in trading Thursday on the New York Stock Exchange.