General Motors Corp. slashed its earnings outlook Wednesday citing a tougher North American market that is increasingly turning toward cars over its aging truck and sport utility vehicle lines.
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The company already has slowed production of the seven-passenger sport utility vehicles made in Oklahoma City, a move that resulted in at least 250 layoffs in January. The factory, which employs 2,200, was idle last week for scheduled downtime to align supply and demand.
Rick Wagoner, chairman and chief executive officer, said apart from North America, the rest of the automaker's global markets are performing in line with expectations.
"But North America is our biggest business, and the key driver of automotive earnings and cash flow," he said in a statement. "So it's important that we get this business right."
Even as Wagoner was acknowledging "significant challenges in North America," GM's stock was dropping Wednesday to levels it hasn't seen since late 1992. GM shares plunged 14 percent, or $4.71, to close at $29.01. Ratings firm Standard & Poor's also cut its outlook on the company to negative from stable. S&P's decision could foreshadow a downgrade of its rating on GM debt to junk status, which would significantly increase GM's borrowing costs.
The company's troubles are many. 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. 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.
GM has cut production and offered aggressive incentives on its vehicles to spur sales. But it's also dealing with high fixed costs such as health care and pension obligations.
The company's light-vehicle sales dropped 10 percent in January and February compared with the same period a year ago. GM's market share also fell to a record-low 24.4 percent in February.
In a conference call with analysts and reporters, Chief Financial Officer John Devine said GM will continue to cut production and increase spending on advertising.
"We've had a mix issue as we have focused on new car introductions, and our trucks are in the last years of their product cycles," Devine said.
GM plans to introduce new versions of its full-size sport utility vehicles, such as the Chevy Tahoe, early next year. The company has not released its plans for the midsize sport utility vehicles built in Oklahoma City, but analysts expect new versions by 2007.
Missteps in several promotions last year may have led to higher inventory levels on GM dealer lots, said Paul Taylor, chief economist for the National Automobile Dealers Association. At the end of February, dealers had a 103-day supply of Chevy TrailBlazers and a 128-day supply of GMC Envoys, according to Ward's AutoInfoBank. Automakers generally prefer supplies in the 60-day range.
Taylor said three GM sales promotions in three months at the end of last year may have confused auto consumers.
"The stumbles at the end of the year in large part carried over into the new year," Taylor said. "Two months do not a trend make, and GM has plenty of time to recover from January and February results. GM has reverted to generous and easily understood incentives that I think will be effective for sales of the TrailBlazer and Envoy."
S&P analyst Scott Sprinzen said intense competition and higher gasoline prices have stalled sales in GM's most profitable vehicle segment.
"GM has experienced marked sales weakness across its midsize and large sport utility vehicles, despite significantly increased incentives," Sprinzen said in a ratings outlook. "The products previously had contributed highly disproportionately to GM's earnings."
GM is scheduled to report first-quarter results April 19.
Contributing: The Associated Press
