The global car industry hit a road block yesterday with the world's top three car manufacturersUS-based General Motors, Germany's BMW and Japan's Nissan Motors – announcing huge drop in quarterly profits due to bad business conditions.
General Motors Corp posted a $15.5 billion (Dh56.8bn) quarterly loss, as North American sales dropped by 20 per cent and plunging prices for SUVs prompted deep charges for its auto finance business.
The number one US car manufacturer also burned through $3.6bn in cash in the quarter as it ran down inventory of slower-selling vehicles in its slumping home market. GM's net loss was equal to $27.33 per share, compared with a profit of $891 million, or $1.56 per share a year earlier, reflecting a sharp drop in demand for the light trucks that represent 60 per cent of its sales.
GM took $9.1bn in charges against second-quarter results, including $3.3bn for buyouts of US factory workers, $2.8bn for its exposure to bankrupt former parts unit Delphi Corp and $1.6bn to write-down lease values.
Revenue fell to $38.2bn from $46.7bn a year earlier.
Excluding one-time items, GM posted a loss of $6.3bn or $11.21 per share. Analysts on average had forecast a loss on that basis of $2.67 per share, according to Reuters Estimates, and had looked for revenue of $42.36bn.
GM ended the second quarter with $21bn in cash and $5bn in credit facilities. It said it had provided notice in July that it would draw down $1bn under a secured revolving loan facility.
Ratings agency Standard & Poor's has downgraded GM to 'B-minus' and warned the car manufacturer was on track to burn through roughly $4bn per quarter this year, sending GM bonds to a record low price.
After losses totalling $51bn over the previous three years, and a $3.25bn loss in the first quarter, GM faced a battery of problems in the second quarter, including a slide in US sales that sent its shares to a 54-year low.
Meanwhile, Germany's BMW, the world's largest maker of luxury cars, said it would miss its 2008 targets after it unveiled an unexpected 44 per cent drop in quarterly pre-tax profit due to worsening industry conditions and big one-off charges. "Business conditions for the automobile industry deteriorated sharply again in the second quarter due to further ongoing steep rises in oil and raw material prices, the weakness of the US dollar, the impact of the international financial crisis and a weaker US economy," the world's biggest premium car maker said yesterday.
Chief Executive Norbert Reithofer, who had been expected to lower his targets after Daimler cut its 2008 earnings guidance last week, poured cold water on the following year, too.
"We assume that 2009 will be another difficult year full of challenges," he said in a statement.
"We had expected an additional risk provisioning in Q2 and a profit warning for the full year 2008, but not to this extent," DZ Bank's Michael Punzet told clients in a research note.
BMW now forecast a 2008 pre-tax profit margin of four per cent, after previously expecting earnings before tax to exceed last year's adjusted level of €3.78bn (Dh21.6bn) that excludes a one-off gain of €97m linked to a Rolls-Royce convertible bond.
Sinking used car prices forced the company to more than double its risk provisions to €695m due to lower than expected revenues from cars coming off lease, it said, adding more still could come in the second half.
"Measures aimed at improving residual values and reducing bad debts will be pursued more intensely," BMW said. It will also scale back its United States sales efforts, shifting volumes to more lucrative regions.
"What we like is that the residual value risks are now covering not only the maturities for 2008 but also the years 2009 and 2010," wrote UniCredit analyst Georg Stuerzer. BMW, which also booked a €107m charge to cut its workforce, said it expected an operating profit (EBIT) margin of about four per cent or higher at its core Automobile division.
BMW reported a 43.5 per cent drop in quarterly pre-tax profit to €602m, bringing its margin to just 4.1 per cent and badly missing an estimate of €1.04bn from a Reuters poll of 18 analysts.
Whereas the market was expecting pre-tax profit at automobiles to edge higher, BMW said it fell by nearly 60 per cent, almost matching a 66 per cent drop in financial services earnings.
Japan's Nissan Motor also yesterday worse-than-expected 46 per cent drop in quarterly operating profit, and stuck to its annual forecasts despite a severe downturn in the US market.
Nissan, Japan's number three car manufacturer controlled by Renault, is forecasting its lowest operating profit in seven years period due to a weaker dollar, high raw material prices and sinking US demand.
A sales slowdown in the US, its single biggest market, has deepened in recent months, with Chief Executive Carlos Ghosn last week forecasting total volumes near 14.3 million vehicles in 2008, the lowest level in more than a decade.
Nissan's vehicle sales grew 6.9 per cent in the first quarter thanks to brisk sales of the Qashqai crossover and Versa subcompact. But Nissan faces falling demand for gas-guzzling vehicles and has been forced to significantly reduce production of light trucks.