Sales slump forces GM to slash profit forecasts

General Motors, the world's largest car maker, stunned Wall Street yesterday by dramatically cutting profit forecasts for this year, blaming a slump in sales in its core market in north America.

The update comes after GM unveiled a radical cost-cutting plan in its European operations in the autumn, including 12,000 jobs from the 60,000 workforce, due to sluggish sales and fierce competition from local and Asian manufacturers.

General Motors' shares plummeted 13 per cent in early trading in New York, after the company said it was heading for its biggest quarterly loss since 1992 and slashed its 2005 profit forecast by more than half.

The company, whose brands include Vauxhall in the UK, Saab and Chevrolet, said it expected a first-quarter loss of $1.50 a share and full-year earnings per share of $1 to $2. The company had previously forecast it would break even in the first quarter and post a profit of $4 to $5 a share for the year.

Rick Wagoner, GM's chairman and chief executive, said: "GM North America is, simply put, our 800-pound gorilla, and today's announcement shows how important it is that we get this business right." He added that the rest of the car maker's empire was performing in line with expectations.

Its US sales rose only slightly in January, while results for February were down almost 13 per cent from the same time last year. General Motors has been hit particularly hard by the recent drop in demand for trucks and large sports utility vehicles (SUVs), which used to be a key driver of profits in the US.

Analysts believe concerns about the cost of gasoline, due to the high price of oil, has subdued Americans' demand for jumbo-sized transportation.

The company also said it would have to cut its mounting healthcare bill for current and former employees, which is likely to rise by $1bn this year. Many GM workers' benefits date back to a time when company pensions and healthcare plans were far more generous than they are now.

John Devine, GM's chief financial officer, said: "One of the issues we've had for North America is the increasing drag of healthcare costs on North American profitability. I don't have any silver bullets on heath care but clearly I think the weakening profitability this year has focused on our need to make progress on health care."