HEADLINE: THE MARKETS: Market Place; What's Good For
the Country Is Good for G.M.
BYLINE: By
DANNY HAKIM
DATELINE: DETROIT, Feb.
25
BODY: General Motors, citing a
stronger-than-expected outlook for domestic auto sales, raised its estimate for
first-quarter earnings today, increased production and set an aggressive profit
goal for the middle of the decade.
"Over all, we're
feeling reasonably good about where this market is and where we are," said John
Devine, the chief financial officer at G.M., the world's largest automaker.
"Certainly on the product side, we're beginning to get some momentum for the
first time in some time."
Wall Street greeted the news
as a further sign of G.M.'s budding transformation from one of the auto
industry's more unpalatable investments to the pick of the Big Three. An
improving outlook for auto sales is also good news for the economy. Shares of
G.M. rose $2.37, or 4.5 percent, to $55.48, helping propel blue-chip stocks.
The company also released details of its off-balance-sheet
activities in an effort to be more transparent and head off the financial
concerns that other companies have faced since the Enron bankruptcy. In a
securities filing, G.M. said none of its officers, directors or workers held any
interest in its off-balance-sheet entities. Such ties have been a leading
concern that lawmakers and regulators have raised about Enron.
"They disclosed that because people have a case of the Enron jitters,"
said David Healy, an analyst at Burnham Securities, who added that these issues
were not a particular concern regarding G.M.
In recent
months, G.M. sales have been growing, and its market share has not been sliding,
an achievement in a market where the momentum has been in the hands of foreign
automakers like Toyota and Honda. G.M. has also been helped by the struggles of
its chief competitors, Ford Motor and the Chrysler unit of DaimlerChrysler.
Last year, G.M. was the only one among the Big Three to
post a profit, and it has maintained momentum this year. Last week, two
analysts, Saul Rubin of UBS Warburg and Ron Tadross of Banc of America, upgraded
the company to a buy rating. In the second half of last year, money-management
giants like Fidelity Investments were moving money out of Ford and into G.M.
But G.M. officials said today that their confidence
reflected improving industry conditions more than competitive trends. The
company raised its projection for 2002 sales of passenger vehicles to 15.7
million from about 15 million.
"Today's guidance has
more to do with the overall industry, the overall economic environment, than the
relative game," said Eric A. Feldstein, G.M.'s treasurer and vice president for
finance.
Driven by higher sales expectations, G.M. also
increased its first-quarter earnings projection to $1.20 a share from $1 a share
and its 2002 estimate to $3.50 a share from $3 a share. Executives also said
they would produce 100,000 more cars and trucks this year than had previously
been announced, a 2 percent increase.
They were also
preparing a $2.5 billion convertible bond offering as part of an effort to
increase G.M.'s cash by $10 billion this year, including the more than $4
billion expected from the sale of Hughes Electronics.
Some analysts were surprised that Mr. Devine said in a conference call
that G.M. intended to earn $10 a share by the middle of the decade, a forecast
that puts pressure on management to sustain its short-term success. G.M. did
have earnings in that range in 1999 -- $9.18 a share -- but had a net profit of
$601 million, or $1.77 a share, last year.
"It
surprised me that he put himself on the line with the prediction," said Efraim
Levy, an analyst at Standard & Poor's.
Skeptics
remain. G.M. has considerable pension and health care burdens because its
domestic market share has been cut in half since the early 1960's, leaving it
with about 2.5 retirees for each active worker in the United States. And the
interest-free financing deals it offered at the end of last year helped revive
its sales but ate at profits. In addition, the company faces a potential battle
with the United Automobile Workers in its drive to make its plants more
efficient and eliminate jobs.
Mr. Levy upgraded his
rating today, but to hold from avoid.
"The stock has
run up recently, and there is still a competitive market," he said, "but they do
have momentum going for them."
One additional hurdle
for G.M. is the possibility of more stringent fuel- economy
standards, now being debated in the Senate. G.M., along with the U.A.W.,
organized rallies of its workers today at plants in Pontiac, Mich.; Janesville,
Wis.; and Toledo, Ohio, against the tougher fuel standards being considered.
A proposal, put forth by Senate Democrats, would raise
corporate average fuel-economy standards about 50 percent by
2013. The standards have not been significantly raised since the
1980's.
G.M. officials said the proposal, if adopted,
would be "devastating" for domestic automakers, who depend heavily on sales of
pickups and sport utility vehicles.
"No pickup, van or
S.U.V. G.M. builds today could survive the higher requirements," said Guy
Briggs, a G.M. vice president and general manager for vehicle manufacturing.
"It could be the end of the family vehicle as we know it,"
he added.
Environmentalists have contended that the
goals are achievable and that domestic automakers made similar arguments when
federal fuel economy standards were introduced in the
1970's.
http://www.nytimes.com
GRAPHIC: Photo: G.M. workers in Toledo, Ohio,
demonstrate against proposed fuel-efficiency rules. CAFE stands for corporate
average fuel economy. (Associated Press)(pg.
C2)
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