GM lost $1,227 per vehicle through June

[HenryTo]

An update on the dire straits that GM is facing:
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GM lost $1,227 per vehicle through June - Harbour
Mon Aug 29, 2005 01:07 PM ET

DETROIT, Aug 29 (Reuters) - General Motors Corp.(GM.N: Quote, Profile, Research) lost an average of $1,227 per vehicle in the first half of this year in North America, while cross-town rival Ford Motor Co.(F.N: Quote, Profile, Research) lost $139, according to new research from Harbour Consulting.

"GM has two to three people sitting at home for every single person working today and that has a huge legacy cost impact on them," Laurie Felax, vice president of Harbour Consulting, told an automotive conference on Monday. "It wipes away any profit that they have."

Both GM and Ford are struggling with multibillion-dollar "legacy costs," including generous retiree health care and pension benefits awarded under their restrictive contracts with the United Auto Workers union.

In June, GM also launched its big employee pricing discount program under which any consumer pays the same low price a GM employee would pay for new cars and trucks. The discounts resulted in blockbuster sales for GM, but some Wall Street analysts said the incentives, which continue through September, are squeezing already low or nonexistent profit margins.

The employee pricing program was matched by Ford and DaimlerChrysler's (DCXGn.DE: Quote, Profile, Research) (DCX.N: Quote, Profile, Research) Chrysler arm in July.

Through the first six months of this year, Chrysler was the lone Detroit automaker to make a profit per vehicle, Felax said. It averaged a meager $186 per vehicle, she said.

In sharp contrast, the big three Japanese automakers -- Toyota Motor Corp.(7203.T: Quote, Profile, Research) , Honda Motor Co. Ltd. (7267.T: Quote, Profile, Research) and Nissan Motor Co. Ltd. (7201.T: Quote, Profile, Research) -- all earned well over $1,000 per vehicle in North America.

Nissan earned an average of $1,826, Toyota $1,488 and Honda $1,203 per vehicle in the first half of their fiscal 2005, Felax said.

Japanese automakers, relentlessly gaining U.S. market share, have very high profits per vehicle because they have more efficient manufacturing operations and lower legacy costs, Felax said.

The relatively new plants of Japanese automakers in North America have younger workers and a mostly non-unionized work force.

Toyota, Nissan and Honda are also stepping up production capacity in North America, particularly for high-margin pickup trucks, Felax said.

"The (profit numbers) are going to continue to grow as that mix of trucks grow for the Big Three Japanese companies," Felax said.

[HenryTo]

And to add insult to injury - even if U.S. consumers continue to have a big appetite for SUVs - the U.S. automakers are falling fast behind in a market where they used to dominate.

I am currently looking at the latest issue of Consumer Reports and there is no American SUV which ranks best in its class:

http://www.consumerreports.org/main/detailv2.jsp?CONTENT%3C%3Ecnt_id=765981&FOLDER%3C%3Efolder_id=113261&ASSORTMENT%3C%3East_id=333137&bmUID=1128398538288

[HenryTo]

More bad news for the U.S. automakers. My guess is at some point, GMAC will be spun off from General Motors - with the latter going into bankruptcy by the end of this decade. If not, the hedge funds (assuming they keep on growing at the rate that they have been) will step in and break the company apart.
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Ford, GM Placed
On Credit Watch
By Ratings Firm

By LEE HAWKINS JR.
Staff Reporter of THE WALL STREET JOURNAL
October 4, 2005

Citing falling sales of sport utility vehicles, ratings firm Standard & Poor's Corp. placed both General Motors Corp. and Ford Motor Co. on credit watch, saying that the ratings of both of the two companies could be lowered by mid-January.

S&P's action came as GM's board was expected to begin a regular meeting today.

S&P credit analyst Scott Sprinzen said the decision stems from the fact that the 2007 vehicle lineups for both Ford and GM are heavily dependent on SUVs and trucks amid high gasoline prices and cooling demand for big, gas-guzzling vehicles. Mr. Sprinzen cited the sales performance of the two companies in September as "the immediately precipitating factor," combined with GM and Ford's already weak financial performance.

"One dominant factor in both cases is our growing unease about the state of their North American businesses, given soaring gasoline prices and what that seems to be doing to their product mixes," said Mr. Sprinzen, who also cited "the state of demand in the wake of the employee discount programs."

Toni Simonetti, a GM spokeswoman, said "We continue to work really hard on getting our North American business turned around, and that's priority one. I think we have outlined a basic plan to do that and our objective is to do so as quickly as possible."

The announcement comes only days after Fitch downgraded GM's rating to double-B from double-B-plus, citing GM's inability to reduce fixed costs, high gasoline prices, and a potential deal to rescue GM's former parts unit, Delphi Corp. At the same time last week, S&P warned that it also was concerned about the effect of gas prices, as well as GM's possible financial obligations to Delphi.

Mr. Sprinzen said the firm will decide to lower or affirm the ratings on GM and Ford after the two companies report their fourth-quarter earnings. "We'll be looking closely at the third quarter numbers and sales performance over the next couple of months," Mr. Sprinzen said.

Write to Lee Hawkins Jr. at lee.hawkins@wsj.com