Message Font: Serif | Sans-Serif
 
No. of Recommendations: 1
http://www.fool.com/News/mft/2004/mft04012011.htm?ref=btp

GM's Stuck in Neutral

By Rex Moore (TMF Orangeblood)
January 20, 2004

Despite delivering better-than-expected earnings and raising its outlook for the next quarter, General Motors' (NYSE: GM) stock price is stuck in neutral today -- reflecting the state of the entire U.S. auto industry.

The world's largest automaker earned $1.41 per share in the fourth quarter -- excluding a gain on the sale of Hughes Electronics (NYSE: HS) to News Corp. (NYSE: NWS) -- on revenue of $49.1 billion. That compares to earnings per share of $1.62 and $45.6 billion in sales during the same period in 2002. For all of 2003, GM pulled in $5.53 per share on $185.5 billion in revenue, compared to $6.69 and $177.3 billion the prior year.

2003 also wound up looking sub par on the cash flow statement. After generating $4.3 billion and $6.3 billion in free cash flow in 2001 and 2002, respectively, last year saw a big dip to $300 million.

The tepid reaction from investors today is probably attributable to both the drop in free cash flow and a decline in U.S. market share from 28.3% to 28%. In a nutshell, the core business is struggling as the automotive unit continues to play second fiddle to the company's GMAC financing arm.

For perspective, consider that GMAC generated $2.8 billion in net income in 2003. Meanwhile, GM's North American unit earned $1.2 billion. The entire automotive business, factoring in losses from foreign operations, earned just an adjusted $370 million.

The company's decision two weeks ago to re-institute a 0% financing program is only further evidence that even management is not optimistic about America's appetite for new cars. Consider that DaimlerChrysler (NYSE: DCX) and Ford (NYSE: F) have followed suit by beefing up their own incentive programs, and you have a decent snapshot of the troubles facing the U.S. auto industry.
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.