GM adds $2 billion to losses
DEAL DISCUSSIONS: Revised total may signal progress in talks with UAW,
Delphi
March 17, 2006
BY MICHAEL ELLIS
FREE PRESS BUSINESS WRITER
Adding up the losses
* The additional $2 billion in losses at General Motors Corp. mostly
came from:
* Higher costs for bailing out Delphi Corp.
* Added costs for job cuts announced in November.
* Look for reaction from investors today to the
automaker's already battered stock price.
* GM is likely to continue negotiations with supplier Delphi
Corp. and the UAW to avoid a strike that could seriously damage the
automaker.
General Motors Corp. revealed Thursday that it lost $10.6 billion
last year -- $2 billion more than it announced in January -- as it
anticipates higher costs for trying to save Delphi Corp., its largest
supplier.
The news suggests that GM may have worked out a broad agreement with the UAW
on the costs of a bailout at Delphi, which would avert a crippling strike
that would be a financial disaster for the world's largest automaker,
financial analysts said.
But the additional losses also come at a difficult time for GM, when it is
trying to regain investor confidence and find a partner for its GMAC
financial-services unit.
GM's losses for last year were the second worst in the history of the
automotive industry -- only behind GM's staggering loss of $23.5 billion in
1992 -- largely caused by changes in accounting rules for health care costs.
The revised figures announced late Thursday are related mostly to Delphi,
but also stem from higher costs for GM's plans to idle a dozen plants and
facilities by the end of 2008, and an accounting charge for its commercial
finance company.
Delphi will now cost GM at least $5.5 billion, up from its January estimate
of $3.6 billion. The automaker did not change the maximum estimate of $12
billion that Delphi could ultimately cost GM.
GM said the new figures reflect "developments in the discussions with Delphi
and the UAW on a comprehensive agreement."
"Maybe that's not bad news, because they've been doing intensive
negotiations and have probably a better idea of what a Delphi bailout will
cost," said David Healy, a financial analyst with Burnham Securities in
Sierra Vista, Ariz. "You could take that as a positive as well as a
negative."
GM, Delphi and the UAW have not publicly disclosed specifics of their
ongoing negotiations toward an agreement that would cut labor costs at the
automotive parts supplier.
However, UAW Vice President Dick Shoemaker told local union leaders
representing Delphi workers from across the country at a meeting Wednesday
in Detroit that GM and the union had recently discussed buyouts to encourage
workers at the automaker and Delphi to retire early.
GM said it expects to spend billions on Delphi because, as part of its
agreement to spin off the automotive parts company as an independent firm in
1999, GM guaranteed some pension and post-retirement costs in the event of a
bankruptcy.
That would push GM closer to a possible bankruptcy, financial analysts warn.
Delphi has said it will ask a U.S. bankruptcy court to terminate its union
contracts unless it reaches a deal with the UAW by March 30.
The UAW has warned that voiding the contracts would trigger a strike.
With the stakes so high for GM and the union, many believe it's just a
matter of time before they work out a deal.
Sean McAlinden, chief economist with the Center for Automotive Research in
Ann Arbor, said GM probably would have to pay hourly workers $100,000 each
to encourage them to retire early.
Ultimately, GM may have to pay tens of thousands of workers to retire, he
added.
"I think these are far more realistic numbers," he said of the new range for
the Delphi costs. "They're starting to finalize what the cash range is going
to be. I'm not sure these are the final numbers."
GM also raised its anticipated costs for last November's announcement that
it plans to idle a dozen plants and facilities in North America by the end
of 2008, also due to ongoing negotiations with the UAW.
Those costs now will total $1.7 billion after taxes, up from $1.3 billion.
GM had previously calculated those costs from the expense of putting workers
from the idled plants into the so-called jobs bank, where they receive wages
and benefits even though there is no work for them, until the current
contract expires in September 2007.
GM said Thursday that the costs now reflect costs after the expiration of
the contract.
GM's financial results also were hit by an additional $439 million after
taxes, mostly because of some assets that its GMAC Commercial Finance
company bought that did not do as well as expected.
In addition to the revised financial results for last year, GM delayed
filing an annual regulatory filing for 2005 with the U.S. Securities and
Exchange Commission because of an accounting issue with ResCap, its
residential mortgage subsidiary of GMAC. GM said it will file the annual
report within the next two weeks.
GM also restated its financial statements for 2001 and subsequent years, as
it said it would last November to correct its accounting of supplier
credits.
"This doesn't come at a great time, obviously with GM being in the market
with GMAC," said John Casesa, managing partner at the independent consulting
firm Casesa Strategic Partners LLC in New York.
GM has been trying to sell off a majority stake in GMAC, its
financial-services company that earned $2.8 billion last year.
Contact MICHAEL ELLIS at 313-222-8784 or [EMAIL PROTECTED]
*
