U.S. Automakers' Profits Decline in 4th Qtr: Industry Outlook
By Alison Fitzgerald
Belvidere, Illinois, Dec. 22 (Bloomberg) -- Jerry Maleck cringes every time he hears that DaimlerChrysler AG is idling its Belvidere, Illinois, assembly plant.
``I see a 40 percent drop in business, easy,'' said Maleck, manager of the Backstop Bar & Grill, a mile from the plant where 3,300 workers build Dodge and Plymouth Neon small cars. ``I get at least 200 workers each week, mostly after work. Especially after the night shift.''
The plant, the biggest employer in the city of 17,700 some 70 miles west of Chicago, was shuttered for four weeks in the summer and fall and is closed again this week and next as the company cuts production to reduce inventories and stem losses.
The scene is being replayed in other cities in the U.S. and Canada as DaimlerChrysler, General Motors Corp. and Ford Motor Co. all cut output because of slowing sales. Fourth-quarter profit fell at all three of the largest automakers in the U.S., and DaimlerChrysler's Chrysler unit may lose $1.25 billion.
``The U.S. auto industry is experiencing a hard landing,'' said John Casesa, an analyst with Merrill Lynch & Co. ``The industry is facing at least two or three quarters of severe earnings pressure to work off these inventories.''
Earnings are expected to fall across the board because U.S. automakers used discounts to slash the prices of their vehicles to try to maintain market share. The three companies continue to lose sales to overseas-based rivals such as Toyota Motor Corp. and Volkswagen AG that have fresher car and truck designs.
U.S. light-vehicle sales rose 3.5 percent in the first 11 months of the year, keeping the industry on track to exceed last year's sales of 16.96 million cars and light trucks. Sales rose 0.2 percent at General Motors through November and 0.7 percent at Ford, while DaimlerChrysler's declined 3.6 percent.
Production Cuts
DaimlerChrysler idled seven of 12 North American plants for parts of this month to reduce production by 50,000 vehicles. The company has reduced fourth-quarter output by 146,000, or 19 percent, from its initial production schedule.
Ford cut fourth-quarter output to 1.07 million cars and trucks from 1.11 million and scaled back its first-quarter production plan more than 9 percent to 1.05 million.
General Motors reduced fourth-quarter production by 5,000 cars, but said it plans to make 221,000 fewer vehicles in the first quarter, a 14 percent drop from a year earlier.
The plant closings give dealers time to clear the building backlog of vehicles, and have some impact on labor costs. Under terms of the companies' United Auto Workers contracts, the hourly workers continue to receive about 95 percent of their pay, but a portion of that is paid through state unemployment insurance.
General Motors
Earnings at General Motors, the world's largest automaker, will fall to $1.13 a share from $1.86 in the year-earlier quarter, based on the average analyst estimate in a First Call/Thomson Financial survey.
Chief Executive Rick Wagoner said he expects profit from operations of $550 million to $600 million, about half the $1.15 billion GM earned in the year-earlier quarter. General Motors has been buying back shares throughout the year.
In an effort to bolster earnings, GM this month unveiled plans to phase out the century-old but unprofitable Oldsmobile brand, close a factory in the U.K. and eliminate 15,000 jobs worldwide.
``Getting rid of Oldsmobile was a good idea,'' said James Glickenhaus, a partner at Glickenhaus & Co., which owns shares in all three automakers. ``The question for the car companies is now, are their moves going to be enough with much more worldwide capacity than demand?''
Ford Motor
Ford, the world's second-largest automaker, yesterday indicated it expects fourth-quarter profit of about 64 cents share, the second time in a month it said that analysts' average forecast was too high. It earned 83 cents a share in the year- earlier quarter.
The company has had to rely less on discounts than General Motors and DaimlerChrysler. Still, sales of some of its best- selling products have declined in recent months. The Explorer sport-utility vehicle has lost some sales following supplier Bridgestone Corp.'s recall of tires that may be connected to 148 traffic deaths, many involving the Explorer.
``Ford's probably showing the smallest decline, but they're still fighting the cost of their recall,'' said Burnham Securities Inc. analyst David Healy.
DaimlerChrysler
Two years after Daimler-Benz AG's purchase of Chrysler Corp., the Chrysler division has faltered as U.S. sales slowed from 1999's record level just as Chrysler was introducing a line of minivans with new features that drove up costs.
Stuttgart, Germany-based DaimlerChrysler will earn about 11 cents a share, based on the average analyst forecast, down from $1.60 a year earlier.
The automaker this week said the Chrysler unit will have a bigger-than-expected operating loss of about 1.4 billion euros ($1.25 billion) in the fourth quarter. In November, the company ousted James Holden and named Dieter Zetsche as chief executive of Chrysler and fired the U.S. unit's top sales, administrative and public-relations executives.
The company also demanded that suppliers cut their prices 5 percent as of Jan. 1 and work toward another 10 percent price cut within two years.
4th-Qtr Year-Ago Number of
Company Estimate EPS Analysts
General Motors $1.13 $1.86 18
Ford .74 .83 15
DaimlerChrysler .11 1.60 5
Estimates based on survey by First Call/Thomson Financial.
Best Regards, J.T. |
