Advertisement
  1. Archive

GM posts record loss: $1.98-billion

Addressing an overcapacity problem Wall Street has warned about for years, General Motors Corp. said Wednesday it took a $2.1-billion third-quarter restructuring charge to cover costs from the planned closings of up to nine factories. The writeoff resulted in a $1.98-billion loss _ the largest quarterly loss in automotive history. GM made $517-million in the third quarter of 1989.

Even without the restructuring charge, the world's largest automaker made just $109-million during the quarter, and analysts praised the move.

"Wall Street sees this as a good thing," said Harvey E. Heinbach, a vice president at Merrill Lynch, Pierce, Fenner & Smith Inc. in New York. "It's clear to everyone that GM has been operating with too much capacity relative to its volume."

Industry analysts said GM's decision to deduct all of the costs from the third-quarter bottom line reflects the desire to make a fresh start following the retirement of former chairman Roger Smith this summer.

GM's new chairman, Robert Stempel, said the automaker, facing "a period of extraordinary external uncertainties," is eliminating excess production capacity in what he called "redundant facilities."

Analysts had expected GM to take a charge for closing four assembly plants, idling several other assembly and parts plants and consolidating some operations, but the size of the charge was more than many expected.

Nonetheless, Wall Street apparently welcomed the move, as GM's stock closed at $36.75, up 12{ cents, on the New York Stock Exchange.

Investors and analysts have long argued that GM is a major contributor to the overcapacity in the North American auto industry, a situation that has forced car companies to spend billions of dollars on buyer incentives such as rebates to empty their lots.

By tailoring capacity to demand _ even when it means such a huge writeoff _ car companies stand a better chance of profitability in the long run.

Americans are expected to buy 14.1-million cars and trucks in 1990, down from 14.8-million a year earlier. GM, despite struggling to maintain a 35 percent market share, still has enough factory capacity to supply 50 percent of the market.

GM sells 40 percent fewer cars in the Untied States than it did a decade ago, and its blue-collar U.S. work force has tumbled from 500,000 to 300,000.

Scott Merlis, an auto analyst with Morgan, Stanley & Co. in New York, said the writeoff shows GM is facing "the reality of the marketplace."

GM's earnings completed a bleak picture of third-quarter results by the ailing domestic auto industry. Earlier this week, No. 2 Ford Motor Co. reported a 78.7 percent drop in earnings, and No. 3 Chrysler Corp. said it lost $214-million.

GM's loss came despite record revenues of $30.8-billion, up from $28.8-billion a year earlier.

GM said it plans to close four assembly plants that have been "temporarily idled" for up to two years. They are in Framingham, Mass.; Lakewood, Ga.; Pontiac, Mich.; and Kansas City, Mo. They employed 6,500 people.

Under the terms of its recently expired contract with the United Auto Workers (UAW) union, GM could not close the plants unless it proved they were no longer viable. So it had "idled" them.

Company officials said Wednesday at least five other plants face possible closure by 1992.

Those factories _ in Lordstown, Ohio; Scarborough, Ontario; Flint, Mich.; and two more in Pontiac _ have been operating under a cloud because they have not been assigned any cars or trucks to build beyond 1992 or 1993. They employ a total of 9,400 people.

YOU MIGHT ALSO LIKE

Advertisement
Advertisement