GM slashes earnings estimate

General Motors warned its 2005 earnings will be as much as 80% [and at least 50%] below its prior forecast due to slumping North American auto sales, sending its shares down 12% to a 13-year low. GM said it now sees full-year earnings of about $1 to $2 per share, excluding special items, down from its previous target of $4 to $5 a share.

GM said its previous outlook was based on North American vehicle-production volume of 1.25 million vehicles, but since then production schedules have been reduced by about 70,000 vehicles and pricing competition has been tougher than expected in North America. "One of the issues we've had for North America is the increasing drag of health-care costs on North American profitability," said GM CFO John Devine.

[Possibly more important that the earnings is...] The company said it also expects negative operating cash flow in 2005 of about $2 billion, before its settlement with Italian automaker Fiat and its GM Europe restructuring, versus the previous target of positive $2 billion.

S&P affirmed its long-term ratings on GM and GMAC at BBB-, one step above junk status, and their short-term [commercial paper] A-3 ratings. But it said in a statement, "We now view the rating as tenuous. The rating could be lowered at any point if we came to doubt that GM was on a trajectory to improving its financial performance to more satisfactory levels in 2006 and beyond."

[Thanks to DVD for the link.]