GM's Earnings Still In Question
-- January 16, 2003
GM may have tripled earnings during the fourth quarter of 2002, but it will take a lot more than that to make up for its growing pension fund liabilities. Moreover, GM's earnings growth came about only because of generous incentives, which will have a negative effect on the company in the long run.
First, General Motors' domestic pension fund ended the year with a whopping deficit of $19.3 billion. And that was AFTER the company contributed $2.6 billion to the fund. GM also announced that its pension costs would TRIPLE in 2003. That's a growing drag on earnings -- especially if the stock market continues its downward spiral.
Second, all automakers -- and especially General Motors -- will face a dramatic slowdown in new car purchases over the next year. Sure, consumers responded to the generous incentive offers such as zero-percent interest financing, zero down payment, and cash-back rebates, but the companies have all but exhausted these programs. And there will be fewer and fewer car buyers in the market as the year progresses.
GM is facing a one-two punch to its earnings. No wonder the market sold off on the company's "great" earnings news.
related article: Pension Costs May Make GM Miss Target