GM's Stuck in Neutral

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Despite delivering better-than-expected earnings and raising its outlook for the next quarter, General Motors' (NYSE: GM) stock price is stuck in neutral today -- reflecting the state of the entire U.S. auto industry.

The world's largest automaker earned $1.41 per share in the fourth quarter -- excluding a gain on the sale of Hughes Electronics (NYSE: HS) to News Corp. (NYSE: NWS) -- on revenue of $49.1 billion. That compares to earnings per share of $1.62 and $45.6 billion in sales during the same period in 2002. For all of 2003, GM pulled in $5.53 per share on $185.5 billion in revenue, compared to $6.69 and $177.3 billion the prior year.

2003 also wound up looking sub par on the cash flow statement. After generating $4.3 billion and $6.3 billion in free cash flow in 2001 and 2002, respectively, last year saw a big dip to $300 million.

The tepid reaction from investors today is probably attributable to both the drop in free cash flow and a decline in U.S. market share from 28.3% to 28%. In a nutshell, the core business is struggling as the automotive unit continues to play second fiddle to the company's GMAC financing arm.

For perspective, consider that GMAC generated $2.8 billion in net income in 2003. Meanwhile, GM's North American unit earned $1.2 billion. The entire automotive business, factoring in losses from foreign operations, earned just an adjusted $370 million.

The company's decision two weeks ago to re-institute a 0% financing program is only further evidence that even management is not optimistic about America's appetite for new cars. Consider that DaimlerChrysler (NYSE: DCX) and Ford (NYSE: F) have followed suit by beefing up their own incentive programs, and you have a decent snapshot of the troubles facing the U.S. auto industry.