As a child I loved to play on swings. Leaning back and kicking my legs forward, I could propel myself into momentary weightlessness. Of course, every good swing ended with an acrobatic dismount. At the point of greatest forward momentum, I would let go of the chains and launch myself off the seat. For a brief moment I would be flying. Like an astronaut on NASA’s vomit comet, I would arc across the back yard. The sensation was thrilling. But I wasn’t a bird. Gravity’s hand never failed to pull me back to earth. And so it is with General Motors.
Today, The General defies gravity. Officially. The global automaker flies near the top of the newly released Fortune 500 list. Corporate revenues of $182b earned GM the number four spot (down one position) on Fortune Magazine’s Fortune 500, trailing only Wal-Mart Stores, Exxon Mobil, and Chevron. As Borat would say, “High five.”
What’s more, General Motors also scored on the list of The World’s 50 Most Innovative Companies. Collaboratively produced by BusinessWeek (BW) and the prestigious Boston Consulting Group (BCG), GM took eighteenth spot on this tally of cutting edge companies. Unlike the Fortune 500, which is strictly a measure of revenue, the BW-BCG list is based on the survey of 2,950 “senior executives” (weighted 80 percent), records of three-year margin growth and revenue growth (5 percent each), and three-year stock returns (10 percent).
GM, who BW dubs a “dark horse,” must have killed on the executive survey because their financials suck. (More on that later.) Fifty-five percent of survey respondents cited General Motors’ products as their most distinguishing innovation (as opposed to innovative customer experience, processes, or business model).
Clearly, the tens of millions (not to say billions) of dollars The General’s spent greenwashing its image has successfully advanced the automaker’s high tech rep within the business community’s chattering classes. One thinks specifically of GM’s highly-promoted, oft-delayed, completely unproven, Prius-chasing gas – electric Chevrolet Volt. And then of GM’s Green Car of the Year Award-winning dual-mode hybrid SUVs. But not specifically of anything actually selling in any number.
I’m at a loss to explain how GM ranks eighteenth of fifty overall behind Toyota (#3), Tata Group (#6), BMW (#14) and Honda (#16) while it is second on the top ten list of innovative automakers produced from the same data by BW-BCG. On that list, GM trail Toyota but edges-out Tata, BMW and Honda. Go figure.
Nonetheless, let us imagine GM flying through the air like a boy slung from a swing, intoxicated by the sweet air of high praise and honor. Now picture a speeding Chevy Aveo slamming into the unyielding off-set crash barrier at the Insurance Institute for Highway Safety. Let’s call that wall GM’s financial report.
During 2007, General Motors suffered $39 b-b-b-b-billion in losses. Among the Fortune 500, GM takes first place in that metric (or last place, depending on how you look at it). Earnings per share fell $68.45, revenue fell twelve percent and assets shrunk $26b.
In fact, General Motors is the only company in the Fortune top ten that lost money, save FoMoCo (who lost a paltry $2.7b). Even the two banks that cracked Forbes’ top ten– Citigroup and Bank of America– managed to turn tidy profits. This despite the ravaging impact of the well-publicized sub-prime mortgage loan losses. To top that off, from 2004 to 2007, GM stock returns slumped eleven percent.
If that number doesn’t put things in proper perspective, consider that General Motors lost nearly as much as Exxon Mobil made ($40.6b). Combine GM’s losses to those of GMAC ($2.3b)– which The General mostly and wisely unloaded during the year– and GM’s losses would have eclipsed the most profitable company in the world.
Unfortunately, conditions in 2008 are no better than ’07. Near-bankrupt suppliers continue to threaten disruption to GM’s manufacturing plants. Commodities market speculation is driving oil and gasoline prices to new highs, and GM has no credible economy car for the vital U.S. market. The American economy continues to flag and consumers are buying fewer new cars. E85, in which GM is so deeply invested, is fast emerging as an eco-fraud and the Volt’s got no batteries. The labor unions are proving that they will yield no quarter so long as the General has a dollar in the bank, no matter how fast their cash is burning up.
Couldda, shouldda, wouldda. Things would certainly be different today if corporate management had started hopping with their new found sense of urgency, say, ten years ago. Or twenty. Or thirty. Can General Motors get its feet back under itself before it hits the ground or are they going to land squarely on their head? Either way, despite this week’s headlines, the company is in a financial free fall and it’s going to hit the ground.
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I wouldn’t hold their stock for very long nor invest in the company. 30+ billions in losses on the heels of losses in previous years. The only profits they saw came from hawking off divisions and acquisitions, not from market share or product.
Did GM get a sense of urgency? When?
Wasn’t most of that 39B a one time tax credit? I think they’d have lost something like 1.5B w/o the one time charge. So still a loosing year, but still better than Ford. If I recall correctly they actually made some money in 2006.
This sort of thing is why when they compare professional stockbrokers to random guesses they come out even in the market. These people obviously don’t know s&*%.
Maybe all these rich farts have been impressed by the new Cadillacs? Or they failed to notice that the Volt DOES NOT EXIST. Or mabye these guys are spending so much time in China that they’ve failed to notice GM’s failures in the US.
Of course, arguably GM is a very innovative company. They made the EV-1 (before they crushed them all), they have been researching hybrids for forever (except they still don’t know how to make and sell a decent one), they even had a brand with neat plastic body panels (before they gave up on that for as yet unclear reasons), heck, they have lots of interesting innovations. They just don’t turn them into anything, and abandon those that do come about.
This is why the US is suddenly in trouble economically. Beyond the housing market fiasco, there lies a fundamental stupidity in the business and financial sectors.
@dynamic88:
I thought all of that was a one time tax credit. But then again mentioning that takes away from the sensationalism.
All the same, the basic message is valid: the General needs to tidy up the financial house quickly.
@adamatari:
The 2 mode hybrid is more than a decent system, its an excellent system. Any unbiased engineer will tell you that. Whether you think it belongs in a 6000lb SUV or not does not take away from its credibility.
Now the BAS mild hybrid, is another story. I’m not sure I would even call it a hybrid. Maybe a “fuel economy enhancement system.”
Raskolnikov
I forgot that they sold Allison Tranny for around 4B, so w/o that, they’d have lost well over 5B. So, yes, they need to get the financial house in order.
Bingo, Adamatari. Our car company executives bitch and whine and complain and take home massive pay packages while delivering little to shareholders. Meanwhile, Toyota and Hyundai, with much more modest executive pay packages, speak softly and carry a big stick, with which they have proceeded to beat the snot out of the domestics. It makes me embarassed for American industry.
Seriously, it’s one thing to get into financial distress during bad times – it happens. But all 3 of our domestic car manufacturers managed to get themselves in trouble during a period of tremendous economic growth. HOW IS THAT POSSIBLE AND WHY HASN’T EVERYBODY BEEN FIRED???
Typical TTAC extremes and double standards. Extremes being comparing ones best case scenario to ones worst case scenario. Double standards being it’s ok for one but not ok for the other to do the exact same.
Here’s a great example of TTAC extremes with worst case scenarios. GM didn’t lose 39 billion in cash last year. It had cash losses of 400 million. TTAC had an article on the 38.6 billion non cash accounting loss.
http://www.thetruthaboutcars.com/?p=6235
Anywho, TTAC completely misses the point everytime it analyzes GM’s problems. And GM’s problems have nothing to do with it’s cars. It has everything to do with it’s entitlements. This quote says it all.
“Corporate revenues of $182b earned GM the number four spot (down one position) on Fortune Magazine’s Fortune 500, trailing only Wal-Mart Stores, Exxon Mobil, and Chevron. As Borat would say, “High five.”
The problem is GM is the largest health-care provider in the United States. By far GM’s biggest problem is it’s entitlements. As of 2007, GM has around 71 billion in health-care liabilities and it’s pension liabilities aren’t far behind. I haven’t even touched on GM’s outrageous salaries as well. $75/hr to tighten screws.
It doesn’t matter how good GM’s cars are. If Toyota had the same ridiculous entitlements GM has, it would be in the same predicament GM currently is in. The negotiations late last year with the UAW will help for now. Until GM can further cut into it’s entitlements, it will continue to stagnate.
I agree with you, I won’t be owning GM stocks anytime soon.
William, there is simply no need for this kind of yellow-journalistic sensationalism. GM did NOT lose $38.7 billion dollars; it was a one-time charge that did not come out of GM’s earnings and did not actually result in GM ‘losing’ any money.
It was the result of a change in accounting laws, (referred to as the Sarbanes-Oxley Act) which required GM to report the deferred tax assets. (which under the past system they were not required to report) It makes a nice headline to say that they lost that much, but it is not true. In fact, the only reason GM reported the $38 billion dollars as a loss was the fact that they reported a net loss for that quarter; had they made money they would have been able to not pay taxes on $38 billion dollars worth of income. What this means is that GM recognized that it would not be making that much money (profit) any time soon, so they decided to write that down as a loss, instead of dealing with the new penalties related to it. It was a paper loss only, and has NOTHING to do with GM’s financial situation.
Here’s a great example of TTAC extremes with worst case scenarios. GM didn’t lose 39 billion in cash last year. It had cash losses of 400 million. TTAC had an article on the 38.6 billion non cash accounting loss.
I did not say that GM lost $39B in cash. I did say they lost $26B in assets, which includes cash. No company can sustain this for long.
If Toyota had the same ridiculous entitlements GM has…
But they don’t and GM does.
Instead of constantly admonishing GM, wouldn’t it be better if you prodded Tata,BMW and Honda to strive for improvement and perhaps at least equal the General?
Give it another quarter or two, it should be done soon
“General Motors lost nearly as much as Exxon Mobil made ($40.6b)” And GM’s market capitalization is about $12 billion; Exxon’s around a half-trillion.
“GM didn’t lose 39 billion in cash last year.” Yes, most of the loss was due to write-offs of deferred tax credits generated in prior years. In other words, they had to reverse bookkeeping entries that assumed there’d be future profits to absorb those tax deductions.
“I won’t be owning GM stocks anytime soon” Nor will many others, directly. Institutions and mutual funds (some of which, like index funds, are required to) own about 95% of the stock. It’s mostly a trader’s play.
Now, if you want a chuckle, go to Yahoo’s Finance section and look at analysts’ opinions on GM stock. Some say buy, some say hold, some say sell. Then reflect on the fact that some of these experts are firms now in shell shock because they failed to realize they were themselves holding huge time bombs in the form of subprime mortgage securities.
brownie_”Seriously, it’s one thing to get into financial distress during bad times – it happens. But all 3 of our domestic car manufacturers managed to get themselves in trouble during a period of tremendous economic growth. HOW IS THAT POSSIBLE AND WHY HASN’T EVERYBODY BEEN FIRED???”
Well put. It’s like some friends I have that could not hold a job in the ’90s when virtually all that was needed was a pulse. And not a steady one.
It clearly takes more than just a good product (and the average at El Generalissimo is not impressive) to win in the business world.
Pathetic relations with suppliers and employees and smoke and mirrors games trying to keep the books looking good have compounded the problems that come with decades of crappy products.
Bunter
GM did NOT lose $38.7 billion dollars; it was a one-time charge that did not come out of GM’s earnings and did not actually result in GM ‘losing’ any money.
While I appreciate the attempt at unbridled optimism, this misses the point.
If GM honestly anticipated becoming profitable on the level of Toyota, it would not have taken the charge off because it could have used them in the future to offset their future tax liability.
Last fiscal year, Toyota generated almost $14 billion in net profit. If they had had the loss carryforwards on their books that GM had, they certainly would not have punted them en masse because they could have used them.
But GM had no choice to dump them…because they do not expect to earn the profits needed to use them. The accounting rules forced them to make an accounting statement that contradicts all of the happy talk coming from Wagoner et. al. GM’s management does not honestly expect to pull out of this nose dive anytime soon; the accountants blew their cover.
it was a one-time charge that did not come out of GM’s earnings and did not actually result in GM ‘losing’ any money.
Then whose earnings did this loss come out of?
It was the result of a change in accounting laws, (referred to as the Sarbanes-Oxley Act) which required GM to report the deferred tax assets. (which under the past system they were not required to report) It makes a nice headline to say that they lost that much, but it is not true. In fact, the only reason GM reported the $38 billion dollars as a loss was the fact that they reported a net loss for that quarter; had they made money they would have been able to not pay taxes on $38 billion dollars worth of income. What this means is that GM recognized that it would not be making that much money (profit) any time soon, so they decided to write that down as a loss, instead of dealing with the new penalties related to it. It was a paper loss only, and has NOTHING to do with GM’s financial situation.
You cannot dismiss “paper losses” as insignificant. Ultimately all accounting entries transactions are real dollars. They impact a company’s net worth, cash flow, ability to obtain credit, issue bonds or stocks, etc. Losses are losses, be they against current period operations, deferred earnings/losses from prior periods, or future earnings/losses. And this has EVERYTHING to do with GM’s financial situation.
Ford seems to have a sense of urgency, but GM? Maybe I missed it among all the blame shifting and touting of great new old products.
The negotiations late last year with the UAW will help for now. Until GM can further cut into it’s entitlements, it will continue to stagnate.
They don’t seem to be helping all that much if local unions can still strike, because they’ve decided they don’t like the agreement that their union bosses reached and they approved (as a whole).
Those paper losses represent $38b in losses carried over from prior years when they were not declared in order to make the company’s profit and loss statements look better; thereby, propping up the stock price and allowing the company’s top level management to cash in big on stock options. Gee, doesn’t that make everyone feel better; much more so than if they actually lost all that money in one year. I’m so happy that they’ve only been lieing to me and the rest of the general public for several years until a change in the corporate accounting laws forced them to report their true losses. Don’t kid yourself; these losses really did occur. They just weren’t reported as they occurred.
GOD “$75/hr to tighten screws”… where do I freakin have to sign? REALLY!!!!
That’s the salary of a GM assembly worker?
It’s impossible a factory worker gets 18K $ in one month or 216K $ in one year…
There must be a mistake in that number.
Anyway… I still don’t think they’re going bankrupt anytime soon.
And yes, they’ve got a lot of good tech.
William, do you know anything about accounting? It was a paper loss; it affects nothing. The only way in which it would have affected GM would have been if the company actually turned a profit, as they wouldn’t have to pay taxes on that income (up to $38 billion). It means nothing. GM lost nothing. I’m not quite sure what is so hard to understand about that.
Stingray:
I believe the $75 per hour represents the total compensation including medical and retirement contributions on behalf of the employee. I believe they only get paid ~$40 per hour, $83,200 per year before taxes.
Sounds like to me that the same wall street types that were pushing subprime paper have now switched to GM and the rest of Detroit. IMO there is no way to avoid a chapter 11 since the UAW will fight until every last dollar is spent on them. It is a nightmare scenario and I think all three companies will have to pay the price. Sure it is GM now, but once they are done for, the UAW will surely go after Ford too. By that time Chyrsler will have folded and been bought up by some foreign company. Shame it has to come to this, but that is the free market system. There seems to be no fundamental understanding on management and the union’s part that there is a limit even GM has to face.
How come certain airlines over the course of the decades always seem to go bankrupt over night? Much tighter budget and margins? GM seems to linger on forever.
How can one lose 39 billion and it have no effect? I predict they will lose billions every quarter. How can they maintain that?
rtz:
Big airlines take forever too. Pan am took decades to die. They sold off everything- Intercontinental hotels, route system, catering operations, headquarters building,planes, gate rental rights, planes…but in the end they ran out of things to sell off. Eastern airlines was the only big one, they went in a few months due to union work stoppage. United airlines has been at death’s door for years, as has United. I think Delta has gone in and out of C11 too.
Shame it has to come to this, but that is the free market system.
No, this is NOT due to a free market. Had we had a free market in auto manufacturing in America, we would not have had only three manufacturers. This is due to government regulation (most of it sponsored\encouraged by the big three) and utter greed on the part of both management and the UAW.
JBlair:
They did lose something, approximately $38b of something. The fact they carried these losses until they were forced to report them all in one year doesn’t mean that they didn’t occur; it just means they weren’t telling the public about them.
Rday:
Even though I am not a friend of big labor, GM management has also been bleeding the company dry for decades. The reason that all of the losses referred to in this story-and argued about in the comments section-were reported in a single year was because GM management wanted to make the company’s bottom line look better than it was, IMO. This would serve two purposes for them, 1) an increase in their bonuses/salary which was undoubtedly tied to profit and loss and 2)an increase in their bonus/salary that was also undoubtedly tied to the stock price. If a company is reporting billions in losses instead of billions in profits, their stock is very likely to drop. So, they hide the losses, report a small profit, and hope that things are better next year so that they can report some of the prior year’s losses without giving the company and its management a black eye. String together several bad years and a billion here and a billion there eventually adds up to real money, ~$38b.
@Lumbergh21
Which is precisely what happened – and why this is not a “paper loss.” It indicated an absence of resources with which to realize the greater ambitions of GM, and when you’re hiding that shortfall, year after year, you end up tying your hands.
It’s not unusual – and often happens when new management comes on board, as it doesn’t want to begin with having to suffer from the mistakes of those it replaces. (And is naturally tied to the stock options/bonuses you mention.)
GM is unique, in that no one in management gets fired, when its year-over-year-over-year cluelessness is made clear to all through such a write-off.
That’s a complete lie. If GM was selling cars at the price levels Toyota is, rather than having to pay them to go away, they’d be making a small profit even with their higher healthcare costs on their medium/big cars, and on their small cars they’d at least break even.
Likewise, if Toyota absorbed GM’s costs, they’d still be making money on most of their vehicles – just not quite as much.
Lumbergh21 :
I believe the $75 per hour represents the total compensation including medical and retirement contributions on behalf of the employee. I believe they only get paid ~$40 per hour, $83,200 per year before taxes.
I believe they deserve every penny of this! How is a man supposed to support a family on less. I aint gonna slave away making cars while big boss makes his millions living on our backs. Bout time we get some recognition for what we brings to the company. With some good running this company would still be the leader.
“I aint gonna slave away making ”
Well said. There are many careers open for uneducated and unskilled workers which pay far more. Quit, grab some of that easy action! Stick to the man! Bring down GM.
(PS, I’ll take fries with that…)
DetroitIronUAW:
Go job hunting – see what everyone else gets in compensation. And get used to it because if things don’t change at the top and with the UAW that’s what you are going to get. Welcome to the rest of the world.
EVERYBODY BEEN FIRED???
AlmostFamous :
Anywho, TTAC completely misses the point everytime it analyzes GM’s problems. And GM’s problems have nothing to do with it’s cars. It has everything to do with it’s entitlements. This quote says it all.
You’d fit right in at the RenCen.
DetroitIronUAW :
April 23rd, 2008 at 8:49 am
Lumbergh21 :
I believe the $75 per hour represents the total compensation including medical and retirement contributions on behalf of the employee. I believe they only get paid ~$40 per hour, $83,200 per year before taxes.
I believe they deserve every penny of this! How is a man supposed to support a family on less. I aint gonna slave away making cars while big boss makes his millions living on our backs. Bout time we get some recognition for what we brings to the company. With some good running this company would still be the leader.
You can’t be serious…
This entitlement attitude is exactly why the UAW is such a huge factor in sacking the American carmaking industry.
The real irony in all this is that there are two camps of GM apologists: the Almost Famous “…GM’s cars are perfect and it’s 100% the union’s fault” people and the UAWDetroitIron “…it’s 100% the fault of the rich executives and we deserve our $80+ grand/year plus lifetime health coverage for our distant relatives because that’s union history” people. Well, really, there are three (there’s also the Rick Wagoner/Bob Lutz “…our cars are great and it’s the consumer’s fault for letting a few decades of shoddy quality and service create a ‘perception gap’ and keep them from buying the cars” mentality, but it isn’t represented here). Anyway, I love how it’s always the other guy’s fault, which brings me to my big sociological point: how else could these people operate in America? This culture is so entitlement-centric and blame-happy, it’s a given.
We’ll all pay for it in the end.
6G74 :
Well, really, there are three (there’s also the Rick Wagoner/Bob Lutz “…our cars are great and it’s the consumer’s fault for letting a few decades of shoddy quality and service create a ‘perception gap’ and keep them from buying the cars” mentality
I agree with this 100%. The preception gap is a huge problem. We are building american cars that compete with the japanese for quality. Look at the good JD Powers and car of the year showings. But people don’t get it. They buy into the propoganda about the Japanese cars.
Also, I’m not sure where your getting the entitlement thing from. We all work for our money, it isn’t just handed to us. We just expect to get paid what we are worth. Not no slave labor.
The Japanese and European perception goes far beyond any “real” statistics. It is intangible. It’s irrational (kind of like Hillary Clinton supporters who cannot be swayed through any argument whatsoever that she is not God’s gift to (wo)mankind) A decision to buy an import says something about YOU. It is a way of expressing your personality. You buy a American pickup truck because you are manly, you buy an Audi because you are upwardly mobile and “worldly,” you buy a CamCord because it demonstrates that you make “smart” and “rational” decisions, you buy a Mini because you are / want to be part of youth culture, you buy a Surburban because you already have the biggest house and nicest yard in the subdivision.
Whatever. Point is: What does having an American car say about you? Because just being pro-American is not “cool.” That IMHO is way more important idea to develop. Quality is a red herring — a way of justifying a decision you have already made.
DetroitIronUAW: We are building american cars that compete with the japanese for quality.
You are building some American cars that compete with the best of the Japanese with quality. The reliability among GM’s lineup, in particular, is still very uneven.
DetroitIronUAW: Look at the good JD Powers and car of the year showings. But people don’t get it.
To the average person on the street, “Car of the Year” awards are largely meaningless. They don’t care. Those awards are designed for gearheads who read the buff books and websites such as this.
There are also so many of them that most people can’t keep them straight anymore – much like the various awards given to movie and television performers.
“Car of the Year” awards are given to the most exiting NEW car, not the most reliable car, or the car that is the best value for the money. Most people look at reliability and value (along with comfort, fuel economy and “mainstream attractive” styling) when deciding which car to buy.
Past “Car of the Year” winners include the Chevrolet Vega, Chevrolet Citation, AMC/Renault Alliance and (1997) Chevrolet Malibu. Enough said…
DetroitIronUAW: They buy into the propoganda about the Japanese cars.
The superior reliablity and build quality of the best of the Japanese cars (Honda and Toyota) is not based on “propoganda.” It has been verified by independent sources (Consumer Reports, etc.) over the years.
What you call “propoganda” is really a reputation that has been earned through focus and dedication.
“I thought all of that was a one time tax credit.”
Not exactly. GM recognized that they had been cooking the book in prior years by taking P&L “gains” for future expected tax deductions they now acknowledge they are never going to get. So in effect they said, oops, we lied to you about over $30 billion dollars of past “profits” which didn’t exist then and never will
“Instead of constantly admonishing GM, wouldn’t it be better if you prodded Tata,BMW and Honda to strive for improvement and perhaps at least equal the General?.”
Admonish them for what? That they need to increase market share, show strong profitability and demonstrate that they know how to grow their businesses while protecting their brand? Well, Tata, BMW and Honda consistently demonstrate that they know how to do all those things.
Nobody should give a hoot what the rankings on some silly Business Week survey are. Do you care how your home town scores in the Places Rated Almanac? You shouldn’t. Currently Pittsburgh, PA was #1 on that survey. Oddly enough, Pittsburgh has been loosing people for the last 60 years. Sample population numbers: 1940 – 672k, 1970 – 520k, 2000 – 335k. If Pittsburgh were truly the best place to live in the USA people would not be leaving it at a steady clip. The analogy to GM is very, very strong.
DetroitIronUAW
I am usually a union sympathizer.. to a point.
The idea that you “deserve” a job making a certain wage is what troubles me. That is called entitlement. It makes people complacent and takes away the need to make yourself marketable in the job market. Decades of this (which we have had) makes for a weaker workforce, which is a prelude to disaster should the company ever go tits up.
If I were in control of a company in the current market, I would do absolutely anything within my power to keep a union out. Companies today need to be able to right-size themselves from time to time. That is hard to do when you have to wait for your workforce to retire/die before you can significantly reduce your size. Of course, I would be just as staunch about salary employee accountability.
This isn’t just a rip on unions. The same mentality exists in salary employees, but it is less significant because they are not protected by unions.
Looks like the General Motors dinosaur just got passed on the highway by a lean, fit Toyota.
http://news.yahoo.com/s/ap/20080423/ap_on_bi_ge/gm_global_sales
This time, no fiddling of figures on a part-owned Chinese microtruck manufacturer on the part of GM diddlers and fiddlers of figures is going to change the reality that Toyota actually passed them last year.
I pretty well “knew” GM was screwed a few years ago when I realized that TATA, the Indian conglomerate, was valued several hundred percent higher than Generous Motors, though GM was a far larger company.
That absolutely speaks volumes. All you have to do is stop, listen and understand the language.
Although the editorial may be an attempt at sensationalism, the responses have been from a wide range of people, with varying opinions. Very refreshing for a change. Not the usual bunch who just mimic the editorial.
It was a paper loss, but 2008 will tell the tale as there is little left to sell off.
The UAW are overpaid compared to others outside the auto industry.
All US corporate execs are overpaid, so don’t pick on GM.
Wagner and Lutz have no idea.
If GM or Ford fail, every US citizen will pay for it. Either is higher taxes or lost wages.
ANYONE SPEAK CHINESE?
“GM has no credible economy car for the vital U.S. market”
“Economy” is not a segment of the market. Small, mid, large, SUV, CUV, etc. are segments. GM has class leading economy in some segments (typically the bigger ones) but not others. But they have “credible” entries in all segments except for the B-class (Aveo)
Regarding the award to GM for being innovative. I think the answer lies in the number of GM ads in the magazine. Usually any magazine that ranks the same products/vendors who advertise in them can’t be trusted to be unbiased.
Regarding the idea the people are buying “Foreign in better” propaganda. There is no propaganda. It is memory.
The most powerful influence in the perception of a car is personal experience and the experiences told to a person by friends and relatives. The cold hard fact is that GM has put out crap for a long time. So it is going to take a very long time of real experience to overcome that memory.
Don’t insult the intelligence of buyers by telling them that they are stupid. You are only reinforcing their perception that 2.8 just doesn’t “get it”.
JBlair is quite wrong, and his knowledge of accounting poor.
FASB 109, issued in 1992 and long before SOX, says “The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.”
In fact, FASB goes on to say “A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.”
The fact is that those deferred tax assets were not all expiring in 2008, but GM determined that it was more likely than not that those deferred tax assets would not be used before they expired.
That means the return to profitability is not happening anytime soon.
JBlair: William, do you know anything about accounting?
As a matter of fact, when I’m not writing for TTAC I am a financial controller for one of the world’s largest banks. I stepped into my current position after managing a corporate accounting department for ten years for the same company.
JBlair: It was a paper loss; it affects nothing. The only way in which it would have affected GM would have been if the company actually turned a profit, as they wouldn’t have to pay taxes on that income (up to $38 billion). It means nothing. GM lost nothing. I’m not quite sure what is so hard to understand about that.
Recording this loss is an acknowledgement that GM had grossly over accrued for deferred tax assets in prior reporting periods. In other words, in prior yeas, they paid their taxes in full but thought that they would get some of that expense back in later years when differences between tax value and accounting value of various taxable assets flipped in their favor. So they accrued for that benefit by reducing losses and creating a deferred tax asset on the balance sheet. In other words, the company has been overstating profit for years to the tune of $39 billion.
By GM’s own admission, “We had determined in prior periods that the valuation allowances were not necessary for our deferred tax assets in the United States, Canada and Germany.” GM’s 10-K for 2007 explains that things have gotten so bad that the long-term methodology they had been relying on for these accruals became so profoundly unreliable that they could no longer justify maintaining such a large asset balance. They use sanitized words like “uncertainty” and “weight of the negative evidence” to explain the change. No word on what elicited this epiphany. It was probably pressure from their external auditors, Deloitte & Touche, who refused to be a party to this monkey business any longer.
Interestingly, they blame Toyota (without naming them) for spoiling their defunct long-term deferred tax asset valuation model. The 10-K reads, “[Increased long-term competition] was seen in the external market in the third quarter of 2007 when a competitor introduced its new fullsize trucks and offered customer incentives to gain market share. Accordingly, we increased customer incentives on our recently launched fullsize trucks, which were not previously anticipated.” They go on to also cite high fuel prices, emissions standards, and GMAC’s sub-prime loans.
Anyway, this has nothing to so with Sarbanes-Oxley as you previously asserted (unless you want to say that D&T didn’t want an Enron on their hands). And it has nothing to do with pushing the entry through in a year with negative operating expenses (GM’s operations generated a loss of $3.351 billion before interest and taxes). While not from current period operations, these are REAL dollars and the loss is evidence of a company in crisis.
“speeding Chevy Aveo”
Still laughing at that one!
Unfortunately, there is a “blame America first” mentality out there. GM, Ford and Chrysler are falling victim to this far left propoganda. Simple as that.