General Motors announces massive $15.5 billion quarterly loss
01 Aug 2008
While Japanese carmakers make merry on increased sales of fuel-efficient vehicles, their American counterparts are notching up record losses. Only a week after No.2 American automaker Ford Motors announced a record $8.7-billion quarterly loss, its bigger peer General Motors (GM) has followed suit with a second-quarter loss of $15.5 billion, the third biggest in its 100-year history. ( See: Ford announces $8.7-billion quarterly loss, goes for major restructuring)
In contrast, only a day after Ford's debacle, Japan's No.2 car manufacturer Honda had announced an 8.1 per cent jump in quarterly profit. (See: Honda reports strong quarterly results in the wake of increased sales of fuel-efficient cars)
The deficit of $27.33 a share compares with a profit of $891 million, or $1.56, a year earlier. Excluding costs GM considers one-time, the per-share loss was four times bigger than analysts projected. Labour strikes contributed to a $9.9 billion drop in North American revenue, and sales worldwide tumbled 18 per cent to $38.2 billion.
The loss was not unexpected, although the quantum did manage to surprise analysts. Only a fortnight ago, the company had announced several belt-tightening measures that would hopefully help it save billions of dollars. (See: GM to cut thousands of jobs, save $15 billion under new restructuring plan)
GM fell 74 cents, or 6.7 per cent, to $10.33 at 10.37 a.m. in New York Stock Exchange composite trading, after dropping to $9.90 earlier. The shares have plunged 56 per cent this year through yesterday, for the worst decline among the 30 companies in the Dow Jones Industrial Average.
The current prices are reminiscent of those seen five decades back, with plunging sales and fears of a cash crunch leading to concerns over a potential bankruptcy.
The results step up pressure on CEO Rick Wagoner to show he can revive the largest US automaker. Wagoner, in his 9th year as CEO, has posted $69.8 billion in losses since 2004 and is trying to raise as much as $17 billion in cash while speeding the development of fuel-saving cars to replace the sport-utility vehicles being shunned by US buyers.
GM's fourth straight quarterly loss comes as a weakened US economy and soaring gasoline prices drag US auto sales to 15-year lows. Demand for GM products dropped 16 per cent through June, and analysts expect the automaker to report a decline in that range when July sales are released today.
''The second quarter has been one of the fastest-changing quarters I've ever seen'' in terms of consumers switching from pickup trucks and SUVs to cars and small SUVs, Chief Financial Officer Ray Young told reporters in Detroit today.
With the American customer shifting preference from GM's fuel-guzzling SUVs to smaller, more efficient vehicles from Japanese manufacturers, GM is looking to sell off its iconic Hummer brand in a bid to cut costs and raise capital. (See: GM looks to India, China, Russia to sell its Hummer brand: report)
The Detroit-based automaker reported a $2 billion charge in the quarter because of the decline in residual values for leased vehicles. The residual value is what a vehicle is worth when a customer returns it at the end of a lease.
Excluding $9.1 billion of special items, notably a special attrition program for North American hourly workers and an adjustment to its Delphi Corp. reserve, GM would have lost $6.3 billion, or $11.21 a share, hurt by industry volume declines and shifts in volume mix, the long strike at American Axle & Manufacturing and large lease-related charges.(See: Delphi, GM near deal with workers' union, say reports and GM discloses $2.6 billion earnings loss due to workers' strikes)
GM was profitable in both its European and Latin America- Africa-Middle East region, posting profits of $20 million and $445 million, respectively. The automaker's loss grew to $9.3 billion in North America, from a deficit of $88 million. In its Asia-Pacific region, GM had a loss of $163 million after a profit of $280 million a year earlier.
About $1.2 billion of GM's loss was related to the automaker's partly owned GMAC finance unit.
GM in 2007 reported its largest annual loss, $38.7 billion, after a tax-accounting change. The biggest quarterly loss, $39 billion in last year's third quarter, topped a $21 billion deficit for an accounting change in the first quarter of 1992.
