Healthcare costs hurting GM

GM 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.

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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.

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.

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.

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. (NYSE:F - news), 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), revised its outlook.

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Anonymous said…
I agree healthcare costs have hurt GM very badly and forced them to have many troubles.