US economy slams brakes on carmakers

By Bernard Simon in Toronto, Jonathan Soble in Tokyo and Daniel Schäfer in Frankfurt

Published: August 1 2008 18:55 | Last updated: August 1 2008 23:36

The faltering US economy is taking its toll on leading carmakers with General Motors, Nissan and BMW on Friday blaming falling sales in the world’s biggest car market for plunging second-quarter earnings.

GM posted a $15.5bn loss as it was hammered by a sharp drop in US sales and a shift from big pick-up trucks and sport-utility vehicles to more fuel-efficient but less profitable cars.

Nissan blamed a 42 per cent plunge in quarterly profit on a fall in the value of leased vehicles in the US and unfavourable exchange rates.

BMW suffered a 58 per cent drop in earnings before interest and tax to €425m ($703m) amid rising provisions, charges for job cuts, skyrocketing raw material prices and the weak dollar.

All three companies were hurt by a glut of used SUVs and pick-up trucks in the US and large losses in car leasing.

Patrick Archambault, analyst at Goldman Sachs, said the latest results would heighten concerns about GM’s liquidity.

The company has bled about $1bn in cash each month so far this year. Its cash reserves have dropped from $27.3bn last December to $21bn on June 30.

GM’s second-quarter loss, compared with an $800m profit a year earlier, includes $9.1bn in special items. These included the cost of redundancy payments, plant closures and an impairment charge on GM’s 49 per cent stake in financial service group GMAC.

Second-quarter revenues fell to $38.2bn from $46.7bn, due to slowing North American business. Revenues at GM’s healthier overseas operations rose by $1.7bn to $20.8bn. Impairments on the value of leased vehicles cost $2bn in the second quarter, including a share of writedowns at GMAC.

Fritz Henderson, GM’s chief operating officer, said industry conditions were “driving up both the costs and the risks associated with leasingâ€