DETROIT (AP) — General Motors Corp. and the United Auto Workers union appear headed for a historic clash as spiraling health care costs seemingly threaten the very survival of the world’s largest carmaker.
GM reported yesterday it lost $1.1 billion in the first quarter, its largest quarterly loss in more than a decade, and it cited the cost of providing health coverage for its workers and retirees as a main culprit.
GM did not provide details of what it spent in the quarter for medical expenses, but it has said the bill for covering its 1.1 million employees, retirees and family members is likely to approach $6 billion in 2005, up 15 percent from last year’s tab of $5.2 billion.
“Addressing health care is our top objective,” GM Chief Financial Officer John Devine said yesterday.
But it may be years before any concrete results are evident. That is because the current four-year labor agreement with the UAW runs through 2007, and union leaders said last week they have no intention of renegotiating the current contract. Instead, they said they would do what they could within the agreement to help GM reduce health care spending.
UAW spokesman Paul Krell said the union had no comment yesterday about GM’s first-quarter results.
“Our view is that concessions are highly unlikely before 2007, and that today’s statement underscores that restructuring GM’s North American operations will be a long, arduous process,” Merrill Lynch analyst John Casesa said in a research note.
The company faces other obstacles as well. Its product focus in the past year or so has been on its car lineup, which generates lower profits than trucks and sport utility vehicles. Yet car sales have been lackluster, contributing to a 4 percent decline in overall business for the first three months of the year. Sales of big trucks and SUVs are off too, in part because of high gas prices.
And, like No. 2 U.S. automaker Ford Motor Co., GM continues to battle declining U.S. market share amid intense competition from Asian rivals such as Toyota Motor Corp. and Nissan Motor Co. Analysts say GM may be able to lift sales with an improved vehicle portfolio, but stemming market share losses will be difficult if not impossible.
GM’s foreign rivals also do not face the same health care cost challenges because, for the most part, they have younger employees, fewer retirees and different systems for paying for health care. That is why GM, Ford and others have been trying to focus more attention in corporate America and at the state and federal levels on what they describe as a health care crisis.
GM warned investors in March that its first-quarter earnings would be below previous estimates of break-even or better, in part because of medical costs. And it reduced its estimate for full-year earnings to between $1 and $2 per share, down from a previous estimate of $4 to $5 a share.
But significantly, it declined to reaffirm that figure Tuesday and offered no further forecast, citing “the uncertainty affecting key elements of our financial forecast, such as resolution of the health-care cost crisis.”
Standard & Poor’s, Moody’s Investors Service and Fitch Ratings all have cut GM’s debt rating to one notch above junk status because of declining market share, increased competition and other factors. Further downgrades could significantly increase GM’s borrowing costs, though none of the agencies acted after GM’s report yesterday.
An S&P spokesman said GM’s first-quarter results were in line with the agency’s expectations.
GM’s first-quarter loss amounted to $1.95 per share, compared with earnings of $1.3 billion, or $2.25 a share, in the year-ago quarter, when the company benefited from its finance arm and improved business in Asia. Revenue fell 4.3 percent to $45.8 billion from $47.8 billion a year ago.
The January-March period marked GM’s steepest quarterly deficit since the first quarter of 1992, when it reported a $21 billion loss primarily because of changes in accounting procedures for retiree health care costs.
GM shares fell 10 cents to $26.09 in trading yesterday on the New York Stock Exchange, slightly above the lower end of its 52-week range. Its shares have plunged in recent weeks to levels not seen in a decade or more.
The company behind brands such as Chevrolet, Saturn and Hummer led the industry with 29 U.S. vehicle introductions in 2004 and plans to follow that with 17 this year.
On top of lukewarm car demand and rising medical costs, GM also battled intense pricing competition in the first quarter. Revenue per vehicle in North America fell to $18,396, down from $19,084 a year ago, in part because of reduced pricing on some vehicles.
Excluding special charges, GM said first-quarter earnings amounted to a loss of $839 million, or $1.48 a share, compared with net income of $1.2 billion, or $2.12 a share, in the first quarter of 2004.