Saturday, June 23, 2007

GM profit falls 90 percent from year-ago

May 3, 11:26 PM EDT
GM profit falls 90 percent from year-ago
AP Auto Writer
AP Photo/Bob Child

DETROIT (AP) -- The troubled mortgage market spilled onto General Motors Corp.'s balance sheet Thursday as first-quarter profits dropped 90 percent from a year ago due mainly to losses at GM's former financial arm.

But the fact that the nation's largest automaker still lost money on its North American operations seemed to trouble industry analysts more than losses at GMAC Financial Services because GM is more than a year into a massive restructuring plan that includes cost cuts and multiple new products.

The net profit of $62 million, or 11 cents a share for the January-March period, was GM's second consecutive quarterly profit, although it was down from $602 million, or $1.06 per share, a year ago.

GM said in Thursday's report it had record vehicle sales of 2.26 million worldwide and showed improvements in its automotive operations in the latest quarter.

Its earnings excluding one-time items fell short of Wall Street expectations and its shares fell more than 5 percent.

The company attributed the year-over-year decline to losses in GMAC's residential mortgage business. GM sold a 51 percent stake in GMAC to private equity investors last year, but still owns 49 percent of the business.

Chief Financial Officer Fritz Henderson attributed the decline primarily to a $115 million loss from the company's stake in GMAC. The financial company on Wednesday posted a first-quarter loss of $305 million, mainly due to a $910 million loss from its troubled residential loan business.

While GM's North American performance improved, the company still lost an adjusted $85 million on its core operations. A year ago, GM reported an adjusted loss of $251 million in North America.

Investors appeared skeptical of GM's performance, sending its stock price down $1.75, or 5.3 percent, to $30.69 on Thursday.

Industry analysts focused on North America, with some questioning whether GM's earnings would continue to be dragged down by GMAC, and whether GM had cut its costs enough.

KeyBanc Capital Markets analyst Brett Hoselton downgraded GM to "Hold" from "Buy" because of the credit deterioration in GMAC's residential mortgage operation. He had rated GM favorably because he anticipated cost savings and better sales from the launch of new pickup trucks.

Lehman Brothers analyst Brian Johnson also questioned his earlier assumption that GM would see improvement from the rollout of new pickups.

"Without substantial labor concessions, meaningful improvements in profitability are unlikely in our view," he said in a note to investors.

Henderson said the company is on track to reduce annual costs by $9 billion this year. By the end of last year, it had achieved an annual cost reduction of $6.8 billion largely through the departure of thousands of hourly workers due to buyout or early retirement offers.

But Henderson conceded that more must be done as it heads into national contract negotiations in June with the United Auto Workers union.

"When we look at the results in North America, it's good to see improvement. It's not good to be operating at a small loss, clearly, given where we are in our product cycle," he said. "Frankly, our business is not generating the kind of returns that we expect, and clearly we have to continue to make significant improvements."

GM also reported $32 million of special items largely due to restructuring in its Europe and Asia Pacific divisions. Its results a year ago were also inflated by a one-time after-tax gain of $395 million due to the sale of its equity ownership of Suzuki Motors.

Excluding special items, GM's net income was $94 million, or 17 cents per share, compared with net income of $350 million, or 62 cents per share in the first quarter of 2006. Those results fell short of Wall Street expectations.

Fifteen analysts polled by Thomson Financial predicted earnings of 87 cents per share, excluding special items.

GM's revenue fell to $43.9 billion for the quarter, down 16 percent from $52.4 billion in the same period a year ago. GM said the decline was almost entirely due to GMAC revenue no longer being included in GM's consolidated results.

Automotive revenue for the quarter was $42.9 billion, down from $43.6 billion a year ago.

But while automotive revenue slipped, the number of cars and trucks GM sold globally rose 3 percent.

Henderson said the average transaction price per vehicle in North America rose by about $1,000 year over year, but GM also had production cuts of 192,000 units for the first quarter as it tried to reduce low-profit fleet sales and incentives.

"Clearly being down 192,000 units is a big headwind," Henderson said.


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Cadillac loads up on safety

Saturday, May 12, 2007
Cadillac loads up on safety
Built in Lansing, the redone STS adds radar, cameras and computer.
Scott Burgess / The Detroit News

MILFORD -- Bad drivers need Cadillac's 2008 STS sedan. Good drivers will relish it.

General Motors Corp.'s luxury brand has loaded up the refreshed luxury sedan with radar, cameras and an onboard computer. They collectively protect drivers from spinning out on slick roads, inadvertently drifting into another lane or swerving into a vehicle in their blind spot. The luxury sedan can even warn a driver of an approaching vehicle.

But safety was only part of the story Friday as Cadillac showcased the new STS at its Milford Proving Grounds. The STS has been substantially reworked, giving it a more refined and powerful look. A larger new grille, based on the Cadillac Sixteen concept vehicle, marks the new face of the brand. The STS also has new rocker moldings on its sides, refreshed front and rear fascias and 18-inch wheels.

"There was a push to address more details to show it belongs in the premium segment," said Charlie Klein, vehicle line director for the STS. Some of those details include new chrome door handles, Sappele wood and metallic trim in the interior and a new instrument cluster.

While the changes add to the luxurious feel, the most important changes take place under the car's sheet metal. The Lansing-built STS will be the first GM vehicle with the optional direct injection V-6. The engine provides 302 horsepower and 272-pound-feet of torque.

"It wasn't even 10 years ago, that if you wanted more than 300 horsepower, you'd have to get Cadillac's (V-8) Northstar, which was a very impressive engine" said John Smith, GM's vice president of global product planning.

The direct injection V-6 operates at a higher compression ratio than a traditional engine, which allows it to produce more power without using more fuel. According to GM, the engine is 3 percent more efficient than the previous V-6 and can continue to run on regular gas.

Additionally, Cadillac will add a new automatic six-speed transmission that was silky smooth during acceleration tests that brought the STS up to 125 mph.

When it arrives at dealers in July, the STS will feature a number of firsts for the brand. It will debut the newest version of StabiliTrack, GM's electronic stability control.

StabiliTrack 3.0, an option on V-8 all-wheel drive STS models, incorporates traditional monitor systems such as the brakes and suspension, but adds an active front steering technology.

This allows the STS to adjust the steering wheel to right the car. If the system detects a sharp turn, it can help the driver adjust in milliseconds.

The STS features a lane-departure warning system that uses a camera to monitor road lines and beeps when the vehicle starts to cross one. A blind spot alert system employs a radar to detect vehicles coming up the rear. A warning light on the side mirrors warns a driver of a potential threat.

"We're really stepping out in the prestige luxury segment as the technology leader with this STS," said Vince Muniga, a Cadillac spokesman. "And we have no intention of slowing down."

Scott Burgess is the auto critic for The Detroit News. He can be reached at (313) 223-3217 or

2008 Cadillac STS

New features include:

6 liter direct-injection V-6 engine.

New compact six-speed transmission

StabiliTrak 3.0, third-generation electronic stability control system.

Lane departure warning system

Side Blind Zone Alert System
Source: General Motors Corp.

© Copyright 2007 The Detroit News. All rights reserved.

GM sued over OnStar change

Thursday, May 10, 2007
GM sued over OnStar change
Sharon Terlep / The Detroit News

A disgruntled Cadillac owner, whose OnStar service will go dead next year as a result of upgrades to General Motors Corp.'s peace-of-mind roadside assistance feature, filed a class-action lawsuit Wednesday against the automaker.

Robert Weaver of Virginia bought a new Cadillac El Dorado in 2002 equipped with GM's OnStar, a much-advertised communication system that links motorists with live operators who can offer driving directions and emergency help.

Weaver is among 1.5 million owners who will be affected when OnStar completes its switch from an analog system to a more current digital network.

While newer GM vehicles are equipped with digital receivers, many older models are not, meaning they will lose OnStar when the analog service shuts down starting next year. Some vehicles made between 2002 and 2004 can be upgraded, but all pre-2002 models will become obsolete.

GM says about 500,000 vehicles have analog systems that can't be upgraded and 1 million have digital-capable systems. A small number of Acura, Audi, Subaru and Volkswagen models are affected.

The switch is a result of a 2002 Federal Communications Commission decision to let cell phone companies shutter their analog networks starting in February. OnStar is carried by Verizon Wireless.

GM has heavily promoted OnStar with commercials featuring dramatic real-life calls between motorists and operators, such as one from a child phoning for help after a car accident.

In the lawsuit, Weaver charges that GM knew it was switching to an all-digital network but continued to sell analog-only systems and failed to inform customers they were to be phased out.

He calls for GM to reimburse all affected customers the $199 cost of the OnStar system along with subscription fees. The suit also seeks to block GM from shutting off service or from charging customers the $15 cost of an upgrade.

The suit was filed in the U.S. District Court for the Eastern District of Michigan on behalf of Weaver and any affected OnStar customers. Weaver's attorney could not be reached for comment Wednesday.

GM, in a statement, said switching to digital was the only way it could maintain comprehensive coverage in the United States and Canada as cell phone companies cancel their analog service. Nearly 90 percent of OnStar subscribers have vehicles that either have the digital system or can be upgraded, according to GM. For those who don't, GM will provide a year of free OnStar service on any new vehicle leased or purchased by the end of the year.

The company said it has sent letters advising affected customers of their options. In addition, by charging only $15 for the upgrades, GM is covering most the cost, said Bill Ball, OnStar vice president of public policy.

"It's a very frustrating situation for subscribers and for us," he said. "The engineers have done their best to try and provide a solution for as many folks as we're capable of doing."

You can reach Sharon Terlep at (313) 223-4686 or

© Copyright 2007 The Detroit News. All rights reserved.