Here's a follow-up on the GTO thread.  This is why GM is hurting so
bad.

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GM Faces Q1 Red Ink by Joseph Szczesny (3/14/2005)

Plant shutdowns and closures are happening, but is it enough to rescue
GM sales?

General Motors said Wednesday that it will lose $855 million in the
first quarter and will earn as little as $600 million for the whole
year in 2005. That news prompted Wall Street analysts to initiate sell
orders on GM stock, driving shares down almost 14 percent to $29.06, a
new 52-week low and a level it hasn't seen in thirteen years.

GM is beset with further losses at the North American automotive
operation, and a market-share decline that is proving resistant to
higher incentives, new models, or marketing gimmicks. GM's market share
was down more than two points, compared with the same period a year
ago, through February to 24.9 percent - its lowest level since a strike
shut the company down in 1998. Making matters worse is the fact that
about one-third of that share is to rental-car companies and "program"
vehicles to employees, retirees, suppliers, and family members of all
three groups - sales that bring in little if any real profit. Each
one-percent drop in market share is worth about $1 billion in lost
profit.

GM said it now sees full-year earnings of about $1.00 to $2.00 per
share, excluding special items, down from its previous target of $4.00
to $5.00 a share.

"GM North America is, simply put, our 800-pound gorilla, and today's
announcement shows how important it is that we get this business
right," chairman and chief executive Rick Wagoner told analysts and
reporters on a conference call.

GM executives said it will have negative cash flow of about $2 billion
this year (versus the projected positive $2 billion), putting a dent in
its nearly $24 billion cash hoard. Morgan Stanley analyst Steve Girsky
says, though, that GM has been padding that cash number by paying its
bills later than in the past. GM has $24 billion in accounts payable,
with an average payment term of 60 days, which is three times longer
than Ford's payment schedule. Those delays, says the analyst, has
boosted GM's reported cash position by $6 billion over the past three
years.

To cope with the worse-than-expected problems (which also include an
expected $500 million loss in GM Europe and a $1.5 billion write-down
for GM's payoff to Fiat, so the Italian automaker doesn't exercise its
put option that would force GM to buy Fiat Auto), GM is reportedly
looking for another $2 billion of fixed costs to cut this year. That
could come in the form of workforce reductions and plant idlings or
outright closings, with a corresponding one-time charge that it would
incur to pay off workers.

The crux of GM's problems: too many workers churning out too many
vehicles because of the United Auto Workers' stranglehold on GM, namely
the inability to close factories and eliminate workers to better match
GM's natural market share; the refusal of the union to pay some of its
own healthcare premiums; too many brands under the GM roof demanding
capital investment in new vehicles and marketing costs. While GM has
been improving quality, its poor brand images do not allow it to charge
the prices that Toyota, Nissan, and Honda can with their better images.

"We continue to believe GM's products are overpriced (relative to the
Japanese brands) by 10 percent to 15 percent due to weak resale
values," says Ronald Tadross of Bank of America, who has a "sell"
rating on the stock, and lowered his price target on the company to $23
from $27.

As for its new-product turnaround, most of the models designed to
attract new customers - the Chevy Cobalt, Pontiac G6, Buick LaCrosse,
and GM's new minivans - aren't attracting much attention even with
beefy sales incentives. Meantime, GM is suffering from comparisons with
Chrysler, which is reaping huge profits from being able to sell a hot
Chrysler 300C sedan and Dodge Magnum wagon virtually without
incentives.

Meanwhile, Ford said Tuesday that it is reaffirming its guidance for
2005 in the wake of GM's announcement. Ford expects full-year operating
cash flow in the range of $1.2-$1.5 billion with a corresponding EPS in
2005 in the range of $1.75-$1.95, with first quarter EPS in the range
of $0.25-$0.35.

Aside from tepid sales of new models, GM is also hurt by the falloff in
sales of big SUVs, which have supported the otherwise losing
proposition of selling passenger cars in North America. "We continue to
believe GM is in a precarious position given lower GM North America
production volumes, especially related to its highest-profit platform,
GMT800 (full-size trucks); the challenging pricing environment; and
less profitable mix (more cars/less trucks)," said Joseph Amaturo,
analyst for Caylon Securities. "We do not expect modest improvements
from automotive operations outside North America to offset these
domestic headwinds. Amaturo added, "We remain confident that possible
credit rating downgrades and a dividend cut are in the company's
near-term future and will only add insult to injury."

GM CEO Rick Wagoner said in January that he is not looking to eliminate
another sales division after closing Oldsmobile. Analysts, though, say
that GM could eliminate Buick or Saturn and probably Saab, and have a
more profitable 20-percent market share, which is the share level that
seems to fit the trajectory of the company these days. Wagoner is
reluctant to sacrifice the "shelf space" of those brands in the
marketplace, nor does he necessarily want to be remembered as the CEO
who shrunk GM. That level of share would require the UAW to face the
reality that the days of $90,000-plus a year for line workers and
paying no healthcare premiums are over. But don't count on any of that
without a big fight if GM tries to push any significant reform before
the next union contract is negotiated.
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Patrick
'93 Cobra