March Strike Cuts GM Profit 52% for Quarter
DETROIT — General Motors Corp. reported a 52% drop in first-quarter earnings Monday, largely due to a 17-day strike at two parts plants last month that idled most of its North American operations.
Still, earnings for the world’s largest auto maker were a bit better than Wall Street analysts had expected. They said the turnaround at GM’s auto divisions remains on track.
GM posted earnings of $1.02 billion, or 94 cents a share, for the three-month period. That compares with profit of $2.10 billion, or $2.44 a share, in 1995’s first quarter. Revenue was down 4.1% at $41.66 billion.
The company’s profit was dragged down by the strike at two brake plants in Dayton, Ohio, called over the practice of awarding in-house work to outside-usually nonunion--companies. GM said the work stoppage cost it $900 million in profit, or $1.20 a share, as it lost production of 240,000 vehicles at 26 of 29 assembly plants.
John F. Smith Jr., GM’s chairman and chief executive, said the strike hurt the company’s first-quarter financial performance, which “certainly was not indicative of GM’s continuing profit improvement.â€
The company and analysts expect GM’s financial performance to equal last year’s for the final three quarters of 1996. GM plans to build about 70,000 more vehicles in the second quarter than originally planned.
GM is the last of the Big Three auto makers to report first-quarter earnings. Ford Motor Co.’s earnings were off 58% at $653 million as it was hit by high costs for new models. Chrysler Corp.’s profit doubled to $1 billion on the strength of strong sales of minivans and trucks.
First-quarter results were somewhat better than expected for all three auto makers, reflecting a surprisingly strong auto market. The unexpected burst in first-quarter sales is due to higher consumer confidence, early tax refunds, wage increases and mortgage refinancings, experts said.
The consensus on Wall Street was that GM would earn about 85 cents a share. Even though it came in higher, GM stock fell 50 cents to $56 in trading Monday on the New York Stock Exchange.
“The market was probably looking for a bigger positive surprise from GM after both Ford and Chrysler came in higher than expected,†said David Healy, an analyst for Burnham Investment Research.
Maryann Keller, an analyst with Furman Selz in New York, called GM’s results “nothing spectacular and nothing extraordinary.†She said the fourth quarter will be key for GM because it will be tested with new vehicle introductions and fallout from national labor negotiations.
Company officials said that despite the labor turmoil in the first quarter, GM continues to cut costs and become more efficient in its North American operations, particularly in its Delphi Automotive Systems parts-making unit.
In North American auto operations, the company lost $195 million in the first quarter, contrasted with a profit of $1 billion a year ago. Internationally, it earned $432 million, down from $522 million a year ago.
GM’s three nonautomotive subsidiaries reported healthy profits.
Hughes Electronics of Los Angeles earned $312 million, up 16% from a year ago. Hughes earnings were boosted by a $72-million gain on the sale of a 2.5% stake in its DirecTv unit to AT&T.; DirecTv provides television programming via satellite to consumers’ homes.
Electronic Data Systems Corp. of Plano, Texas, earned $219 million, up 11% from a year ago. GM expects to complete the divestiture of EDS in the second quarter. EDS will pay GM $500 million as part of the deal.
General Motors Acceptance Corp., the auto maker’s huge lending arm, reported earnings of $309 million, up 21% from a year ago.
