GM Expected to Post Profit When It Reports 3Q Earnings

DETROIT October 12, 2004; John Porretto writing for the AP reported that General Motors Corp. is expected to post a healthy profit rise when it reports third-quarter earnings Thursday, but its European business continues to falter and another severe overseas overhaul is likely.

In addition to releasing earnings for the July-September period, some analysts and industry observers say the world's largest automaker is likely to announce further restructuring -- including a massive job reduction -- in Europe, where GM has failed to record a profit since 1999.

During last month's Paris Auto Show, GM executives hinted that job cuts were inevitable as the company deals with overcapacity for building vehicles in Europe.

"I think they've come to the conclusion they have to do something fairly drastic because they've got too much capacity in a tough market," said Burnham Securities analyst David Healy, who expects GM's European division to lose between $250 million and $300 million in 2004.

On Tuesday, the Financial Times said GM will cut almost 12,000 jobs in Europe, or one of every five of GM's workers there, to reduce costs by $500 million a year.

GM spokeswoman Toni Simonetti declined to comment on speculation about job losses but said "the environment is difficult in Europe for any full-line manufacturer" because of intense competition and pricing pressure, among other factors.

"We've got some challenges, and we've got to step up to them," Simonetti said.

In a report this week, Prudential Equity Group analyst Michael Bruynesteyn said he expects GM to earn $1.10 a share in the third quarter, up from 79 cents a share a year ago, despite a 4 percent decrease in North American vehicle production. Healy is forecasting earnings of $1 a share, 4 cents more than the current Wall Street consensus.

GM's improvement, Bruynesteyn said, should come primarily from cost cutting in North America and improved business in the Latin America and Asia-Pacific regions. He forecasts earnings for GM's finance arm, which has contributed heavily to overall results in recent quarters, to amount to $625 million, about the same as a year ago but a big drop from $860 million in the second quarter of this year.

In Europe, Bruynesteyn predicts a loss of $210 million, which would compare with a loss of $152 million in the year-ago period.

Even though it has increased its market share in Europe slightly this year, GM has had persistent losses amid sluggish consumer demand -- a factor that has plagued other automakers too. Analysts at Sal. Oppenheim private bankers in Frankfurt see Western Europe's overall sales at 14.6 million this year, not much improved from a sluggish 14.2 million in 2003. Sales in the key German market are not expected to reach last year's 3.24 million mark.

For GM, much attention has focused on plants belonging to its German subsidiary Adam Opel AG in Bochum and Ruesselsheim, which together employ 13,200 people. GM is burdened there by high labor costs characteristic in Germany, where industrial workers typically put in a 35-hour week and companies are saddled with high payroll taxes to fund social benefits.

In June, GM announced a major overhaul of its European operations, saying it would bring its Opel, Vauxhall Motors Ltd. and Saab Automobile AB units under closer central control by its European headquarters.

The company, whose GM Europe arm employs about 62,000, said it hopes to increase efficiency by moving functions such as finance, engineering, manufacturing, sales and marketing into Europe-wide departments coordinated at GM Europe headquarters in Zurich.

The company also is creating a single design unit, which will oversee work being done on new Opel, Vauxhall and Saab models.

In June, after earlier forecasting at least break-even results for Europe this year, GM backtracked and said the division was likely to lose money again in 2004.