GM Predicts Earnings Down Due to Marketing Costs

12/23/96

Reuters reports that General Motors expects its fourth-quarter earnings for 1996 to fall below what industry analysts predicted for the carmaker. The company attributed the downward revision to higher incentives and advertising costs for new products. Analysts had made a consensus estimate of GM's earnings for the quarter at about $1.00 per share; GM's revised figures predict earnings of only $0.60 per share.

GM advised analysts of the revised earnings forecast last Wednesday, but on Thursday GM spokesperson Toni Simonetti declined to comment on the company's earnings estimate. She said GM told certain analysts that it expected higher incentive spending and commercial expenses for this year's fourth quarter.

GM earned profits of $1.98 a share for the fourth quarter last year. The company is currently launching 15 new North American models, which amounts to about 25 percent of the company's entire product line. GM also reports that it is spending increased amounts to foment growth in the Asia/Pacific region and Latin America, but expects a neutral rather than positive sales mix.

An anonymous auto industry analyst said GM's revised forecast stems from incentives and new model advertising in the United States, as well as higher start-up costs for Poland, Argentina, China and Thailand. The analyst described the situation as "a temporary hiccup in the fourth quarter."

Sources from Goldman Sachs and Painewebber said both investment houses cut their estimates for GM's fourth-quarter earnings: Goldman cut its earnings estimate to 50 cents per share from $1.05, Painewebber cuts its estimate to 15 cents from 50 cents. GM's stock lost 87.5 cents, trading at $53.625 after a delayed opening on the New York Stock Exchange, last Thursday.

Paul Dever -- The Auto Channel