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· SSR Owners Group
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DETROIT (Reuters) - General Motors Corp. (GM.N: Quote, Profile, Research) on Tuesday posted a first-quarter net loss of $1.10 billion, its worst result since the industrial icon skirted bankruptcy in 1992, due to weaker U.S. sales and growing costs for employee health care and raw materials to build cars.

The world's largest automaker, which alarmed the markets last month when it slashed its outlook, said its automotive operations lost $1.98 billion in the quarter, with a loss in North America alone of $1.56 billion.

The automaker also withdrew its earnings and cash flow forecast for the 2005 calendar year. Last month, GM cut its outlook for the year to a profit in the range of $1 to $2 per share, and analysts expect GM to earn a profit of 61 cents per share this year, according to Reuters Estimates.

GM had a cash outflow of $4.7 billion in the first quarter, including $1.7 billion for job cuts in Europe and a payout to Fiat SpA (FIA.MI: Quote, Profile, Research) to dissolve a partnership with the Italian automaker.

"The lack of 2005 guidance will alarm some," JP Morgan analyst Himanshu Patel said in a research note.

GM may be withholding a forecast because it is working with the United Auto Workers union to try to cut health-care costs, and "during this politically-sensitive time, it will likely want to keep its cards close to its chest," Patel said.

GM said the first-quarter loss amounted to $1.91 per share and included several one-time items. In the first quarter last year, GM earned a profit of $1.2 billion, or $2.12 per share.

The loss was the biggest since GM lost $21 billion in the first quarter of 1992, when changes in accounting procedures required companies to include health-care costs in earnings.


GM shares were down 73 cents, or 2.8 percent, at $25.46 in midday trade on the New York Stock Exchange, about half the 52-week high of $50.04. Earlier the stock dipped to $24.68, its lowest level since 1982.

GM's total sales and revenue slipped to $45.77 billion from $47.83 billion in the year-ago quarter.

GM said last month that it expected cash outflow of $2 billion this year, a $4 billion reversal from a January forecast, due in part to mounting health-care costs.

Should GM continue to burn cash, the automaker could withdraw up to $6 billion in cash over the next 18 months from a $20 billion fund set up to provide health care for retired U.S. union workers and their dependents, Chief Financial Officer John Devine told reporters and analysts on a conference call.

An analyst with Sanford Bernstein said in a recent report that GM could use the threat of refusing to pay for retiree health care to force the United Auto Workers union to pay more for health-care costs.

"We have to address some very serious cost issues, and health care is at the top of that list," Devine said.

He declined to discuss talks with the union, which included a briefing last week to UAW executives by GM Chief Executive Officer Rick Wagoner about health-care costs, which the company expects to rise to $5.6 billion this year from $5.2 billion in 2004. GM is the largest private provider of health-care coverage for workers in the United States, paying benefits to more than 1 million workers, retirees and their families.

"Our view is that concessions (from the union) are highly unlikely before 2007," Merrill Lynch analyst John Casesa said in a research note.

The Detroit automaker sent shivers through the markets last month when it cut its quarterly outlook to a loss of $1.50 per share from a previous forecast of break-even or better.


Also hurting GM has been falling U.S. market share to about 25 percent in the first quarter this year, down from about 34 percent in 1992.

GM's March earnings warning spurred debt ratings agencies to warn that they could downgrade GM's bond ratings to "junk" status at any time. That has already increased the cost of borrowing in the unsecured corporate bond market for a company that had about $300 billion in outstanding debt at the end of last year.

Spreads on GM's finance unit GMAC bonds due 2014 with a 6.75 percent coupon on Tuesday were 0.06 percentage point tighter to yield 5.75 percentage point more than comparable Treasuries.

Ford Motor Co. (F.N: Quote, Profile, Research) , scheduled to release its quarterly results on Wednesday, chopped its 2005 earnings forecast earlier in April. It was the second time in less than a month that the third-largest automaker, whose bottom line has also been hit by market share losses to profitable foreign rivals led by Toyota Motor Corp. (7203.T: Quote, Profile, Research) , revised its outlook.

Excluding one-time items, GM posted a first-quarter loss of $1.48 per share. On that basis, analysts had expected GM to lose $1.50 per share. The items included a restructuring of GM's European operations and the idling of a vehicle assembly plant in Michigan.
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