That's a lot of billions. Of course, GM camp followers will do the usual math, discounting "one time" charges to paint a more palatable picture of pissed-away profits. The New York Times does the math for those so inclined. "According to the earnings statement, the loss included $9.1 billion in one-time charges, $3.3 billion of which was for employee buyouts… Included in the results, the statement said, was $1.3 billion in write-offs that reflect the drop in value of trucks and sport utility vehicles in GMAC Financial Services’ portfolio… Excluding one-time charges, G.M. had a loss of $6.3 billion or $11.21 a share, compared with income of $1.3 billion or $2.29 a share in the same period last year." And still the spin is spun. "We have the right plan for G.M., driven by great products, building strong brands, fuel-economy technology leadership and taking full advantage of global growth opportunities," GM CEO Rick Wagoner asserted. His optimism is based on this startling stat: "North American sales were down 20 percent, or 236,000 units, while sales outside of North America grew by 10 percent or 116,000 units. A record 65 percent of G.M.’s sales for the second quarter were outside the United States, the company said, while global market share was 12.3 percent, down 0.9 percent because of the weakness in North America." GM Death Watch later today.
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The phrase “train wreck” comes to mind.
At this point, I’m truly surprised that Wagoner still has a job
The BOD revolted back in ‘92 and canned then-CEO Bob Stempel.
The situation now is far more dire, yet the Board continues to sit on its hands? I don’t get it.
Ok, come on with the August incentives, I want me a new Silverado.
Luckily though, the democrats have come up with a plan to issue loan guarantees for 25BN.
That should give them at least another quarter or two to come up with a full range of desirable cars people want to buy and a cost structure that allows them to sell those at a profit.
If one time charges occur ever quarter then aren’t they just charges?
According to the press release the $15.5 billion GM lost were REAL costs (i.e American axle strike, buyouts for staff, plant closures, etc) not paper losses. Now at last check GM had a cash hoard of about $27 billion (N.B: This money was accrued from loans which haven’t been paid back yet, NOT from past years’ operating profits) so subtract $15.5 billion from $27 billion leaves $11.5 billion. Now factor in the fact that GM needs AT LEAST $10 billion for everyday running costs, this must leave GM perilously close to having naff all cash hoard.
And Rick Wagoner still has a job….?
Losses like these have to start affecting sales overseas if they haven’t already, just as many Americans in the know might not consider a 2.333 product because of their financial difficulties at the moment.
“G.M. said it would bolster its liquidity by $15 billion through a combination of cutbacks, asset sales, and debt offerings.” NYT
The interest to be paid on the “debt offering” bonds would have to be stifling! As far as assets, 49% of GMAC doesn’t sound like a hot asset at the moment, and I don’t think plants that are being closed in highly union areas would fetch more than a couple hundred million. Rencen? Are there assets I’m not thinking of?
I really want to see GM do well – until I “went import” a few years ago (due to the lack of any compelling products from GM), I hadn’t owned anything but GM products.
But come on, this is getting absolutely ridiculous. Today, I finally think that GM is doomed to Chapter 11. They can’t make money in a good market, and they sure as hell can’t make money in a bad market. They’re phenomenal at piling up jaw dropping losses quarter after quarter, year after year, though. I’ve never seen a company lose money the way GM does. They literally can’t seem to do anything right, aside from some product success (albeit probably the wrong products at the wrong time). I ask this as a serious question – has any public company in US history EVER lost the kind of money GM has lost from 2006 to the first half of 2008? And if so, have they done it while avoiding bankruptcy? It’s weird that a company that had been so successful for decades – successful enough to be able to now piss away tens of billions of dollars without yet running out – can become such an abject failure.
The fact that a few months ago, the board reinstated bonuses for execs (which I believe have since been rescinded again) and jacked their base salaries up to previous levels because the turnaround plan was “on track” proves the cluelessness of both management and the board of directors.
Rather than selling off all of the cash cows, it probably would be better for GM to cut its losses and declare Chapter 11 now, while there are still components of a viable company left to rebuild from post-BK.
Barring the literal definition – how often do these “one time charges” become commonplace that they are no longer unexpected?
@jaje:
I had to come to a similar realization in my own personal finances last month. I realized that every month has “one time expenditures,” so I might as well expect $500-$1,000 per month to pop up that I wasn’t expecting. So, my rationalization that I had that extra money toward a new car disappeared.
Katie… if you are right then GM would be within weeks of having to file.
I doubt that. I hope not anyway.
Shouldn’t Rick get another bonus to bring him to around $15 million? It seems his salary+bonuses are pretty close to 10% of a given quarter’s loss.
Holy eff. Wasn’t WSJ pegging a $3-4B loss yesterday? I agree with Katie, these sound like real losses, not deferred net loss/profits expected to acrue from past yield dividend asset reductions or some such accounting bs.
If there is a federal loan to GM, I want Rick Wagoner brought before a Senate investigation hearing.
let’s see, the second quarter loss is more than twice the company’s valuation. someone help me with the math here as to how there still is a GM. stack that on top of the previous tens of billions in losses and realize Red Ink Rick isn’t just CEO, he’s Houdini (remember he said he would come back)
But you can kiss the “we have enough cash to last until the end of 09″ stuff away.
I think the true problem with Chrysler, GM and Ford is that this country has been so damaged by lobbyists (oil, foreign, etc) that the country is at a standstill and has no idea where to go next.
we tried flexifuel with Ethanol and damn near caused widespread famine.
Hydrogen isn’t a good solution for the infrastructure.
Water fueled cars is never going to happen here (it possibly could in Japan though).
What America needs is to move to an infrastructure that is entirely nuclear. We start with fission and gradually move towards technology that gets us FUSION. Fusion unlike fission doesn’t leave behind massive amount of waste and is more efficient and safer.
America needs a Fusion powered electric infrastructure which means we’ll need to invest in our own future to get a better electrical power grid.
What is a water fueled car?
Do you mean hydrogen?
Also, Gm lost 6 bill on ops this quarter.
So is the official cash burn now 2 billion a month?
If that rate continues GM is cooked within a year. It also brings up a possibility even us GM haters haven’t discussed— Chapter 7 liquidation. If they keep going like this by the end of the year the company may well be irrecoverable even with C11.
Stempel, (the last real ‘car guy’ at the helm of GM) was fired for much less than Red Ink Rick’s lack of leadership. How much has GM lost under his inspired leadership-in excess of $50 Billion?
will be curious to hear how LaNerve’s damage control to the delaerships in Michigan works out today.
Actual cash burn was only about 3 billion for the quarter, which leaves right at 20 billion left in cash. It does keep up the trend of a billion a month cash burn, though.
The breakdown in red ink is spelled out in the Detroit News.
A titanic loss signaling intent to file. Look for the Board to remove Rick this month.
OUCH!!!!… that hurts.
And I’m a GM fan
This is a big ass amount of money.
And sad…
Why Wagoner is still CEO?
How have the people of detroit/michigan not collective took up arms/pitchforks/torches and forced these guys out of the company?!
the fact that Slick Rick still has a job makes me think he has an ace up his sleeve (CH11) and the BOD is in on it. Even when losing billions it was ok because that was the plan! The newly announced “turn around” plan is just a cover so when they do go under he can say “well we tried are best”. scum bag.
The question that nobody here has asked is:
If GM can lose $15.5 billion in one quarter, why can’t it lose another $2-3 billion and get rid of some dead brands?
Now is as good a time as any…
very true. 1 Billion to close the dead brands sounds like a bargain right now.
I agree with Stingray. I want to see GM survive, if only because I shudder at the thought of buying a Toyota, but if they keep piling up the losses, I’m getting worried. I want a new Camaro, and I want GM to be around when I get one this time next year. Maybe it’s time for new leadership…
last year would have been a better time
To GM-All 3 american manufacturers bleed billions, while all japanese raise profits in billions.How come? This is what happens when Big 3 don`t want to accept rules of fair game, but just fuck around with vapourware promises, and factories get shuttered one by another.
How much would it have hurt to roll your fucked from sloth swollen hands up and for a change create some platform yourself instead of borrowing and borrowing. I want to puke on you , how low will you go, soon probably you will beg from Yugo Zastava to borrow their floorpan, just to avoid any elbowgrease yourself.
This is real America, everything generic, borrowed and rebadged, and then you wonder that your dollar is falling and debt skyrockets. Do you really think that japanese and germans, and chinese will sweat hour for hour cutting out every single precision part and assemble every new car, and you think they will not learn how to succeed? And you think you will just buy /sell estate, move lawns, fuck Iraqi land, sell dot coms and live forever rich?
Sorry, the time to pay debts slowly comes! And those who were sweating details, now reap profits!Oh, your mazda or toyota dealers service attitude sucks? Guess who works there? Japanese? nope, your American fellows. 15bn loss is just a normal consequence of cranking out rare, subpar rebadged products.
Fusion is also very, very hard to do. They’ve yet to reach effective engineering break-even (energy in vs. energy out) and commercial break-even is very far away. Fusion also requires easily fusable fuel source material (well, unless you’re a sun, and even then). That material is usually hydrogen or helium, which you have to get from somewhere.
There’s no magic energy source, and the lowest-impact options (solar, tidal, geothermal) just don’t return enough because, frankly, there’s just not that much energy there to start with.
The real solution is getting consumption down. We (humanity) are using a lot of energy to maintain a lifestyle that flat out unsustainable. Drilling just puts off the problem. Fission or fusion put off the problem. At some point, we’ll have to pay the piper.
I like hybrid cars for this reason. They’re not perfect, but unlike the “magic pixie dust” approach typical of alternative fuels, the emphasis with a (good) hybrid is smarter use of energy resources through management and reclamation. We need more of that, and not just in automobilia.
If GM can lose $15.5 billion in one quarter, why can’t it lose another $2-3 billion and get rid of some dead brands?
Because that would cost real money. These accounting charges are paper writedowns that don’t consume real cash.
There are real losses contained in the write downs, but they are historical in nature, the accounting version of spilt milk. The accountants are just adjusting the books to face a previously cast reality.
What is ominous is the huge negative operating cash flow number, coupled with falling revenues and market share. Not only is the burn rate high, but they don’t have the customers they need to feed the burn rate. Bad, bad news.
Combine that with the eroding cash position and the diminishing credit lines, and you end up with a serious liquidity problem that can only be fixed with a miracle, a bailout or a bankruptcy.
But, wait, isn’t the Volt going to save them?
Pch101,
Paper writedowns might describe the impairment and accounting charges, but not the other charges. The cash outflow is simply deferred. They’ve recognized those expenses now and will have to pay them out eventually. Buyouts and payments to Delphi will cost real money, just not right now.
@ PCH101:
I don’t understand your statement that these are just paper losses that don’t consume real cash. For example $2.8 B paid to help Delphi, how is that not real cash? Or $3.3 B in buyouts? Or $1.1 B in restructuring NA plants? Those all sound like actual cash payments to my not an accountant mind. Seriously, I’m not arguing that your statement is true or exactly how these losses are viewed in the financial world, I just don’t understand.
@PCH101: I usually am nodding my head when I read your posts, but not today.
The $9B in one time charges aren’t just accounting charges. $3.3B was handed out to workers to stop coming to work. That’s cash in the form of a paycheck to you and me.
The $1.3B in losses due to SUV’s and pickups having a lower value in the market is real money that’s disappeared down the rabbit hole. GMAC and the dealers are taking it in the ass.
The $200M to American Axle is a cash buyout of those workers. So no, I don’t buy the “non-cash” one time charges.
Oh, and revenues fell by half. This company isn’t a going concern by 2010.
Heard this news driving to the office this morning, I was expecting hear about a $3 billion quarterly loss, but $15 billion in three months? That nearly as large as the California state deficit and Arnold just whacked the income of 200,000 state employees yesterday down to $6.55 per hour. I read GM took in an average on slightly over $17,000.00 per vehicle sale in July, compared to $21,000.00 per vehicle sale in previous quarters.
How can they not file bankruptcy?
I’m waiting for GM to offer its products on Woot.com.
Seriously, can someone tell me why management/Board is not sitting down with the other stakeholders (unions, vendors, creditors, etc.) and hashing our a survival strategy? Otherwise it is clear that Chapter XI is inevitable.
They won’t file because it’s GM dammit, and who wants to be the guy who turned out the lights on the once-upon-a-time greatest company in the world.
They can’t survive without a bailout. I just don’t see how they could make it out of a C11 with the resources they have now. Between the sales hit they will take with the lease thing (and that isn’t even on the books), odds are the next quarter will be a whopper too. They need to file ASAP. Even if they get a bailout, they will need to file to get the house in order.
By comparison Ford is looking pretty good right now eh? 700 mill in operational losses vs. 6 billion.
And they have more cash. And they have proven small cars so they are even ahead of GM on that metric, even though they aren’t, you know, selling them.
Perhaps Rick is still there because he IS DOING WHAT the BOD wants.
Perhaps C11 is the exit strategy and they just want it to appear they are trying. If so Waggy is on game.
Bunter
I don’t understand your statement that these are just paper losses that don’t consume real cash.
Take a look at the financial statement highlights, and you’ll see the details.
http://media.corporate-ir.net/media_files/IROL/84/84530/earnings/Q2_2008_Financial_Highlights.pdf
For example, you have a $1.3 billion charge to impair the value their ownership interest in GMAC, which is a writedown of the asset value. That sort of change is just an adjustment to a figure on the balance sheet that was overstated, because GMAC’s value is falling like a rock.
That’s not a good thing, so the fanboys should give their pom poms a break. On the other hand, though, the losses don’t consume cash, they just erode value.
It’s a bit like losing equity in your house — it isn’t worth as much as it used to be, but you still own a house and your cost of ownership remains the same. You’ve lost value, but you haven’t lost any cash.
In my opinion, the cash flows are more important, because that’s how the bills get paid. GM is bleeding substantial amounts of cash, and comes nowhere close to supporting the business with its operations.
What I’m getting at is that the situation is actually much worse than the operating statement implies. GM uses far more greenbacks than it earns, and there is no apparent plan to stop the bleeding.
Wagoner’s response is the same old same old cutbacks and asset sales. But he’s running out of things to cut and sell, and he has no revenue plan.
As someone mentioned above, Wagoner is actually increasing the likelihood of a future bankruptcy filing turning into a Chapter 7 liquidation instead of a Chapter 11 reorganization because he won’t have any more assets left to sell in order to pay for it. If GM ends up in 7, it’s literally dead, as in gone, history, sayonara. The more assets that he sells off, the more likely that becomes.
It’s not some elaborate plan to make it look like they are doing something. Even GM doesn’t blow 30 billion or w/e they lost this year alone to keep up appearances. And appearances mean dick all to a bankruptcy court; what matters is cash. The less you go in with, the harder it is to get out of it.
This is stupidity, pure and simple. They simply cannot believe that the situation is as bad as it is. Right now they are hoping for something, anything to save them. Maybe they will get it, but barring a sizable government bailout its game over for GM. Frankly Wagonners promise that GM had the cash to last until the end of 2009 is looking a bit optimistic. It assumes that continued 1bill/month burn, but they just lost a ton of leases. And it assumes that no other expenses will come up, which is laughable.
They’re lobbying tight and hard to get the price of gas under four dollars. That number was the cut-off which killed their SUVs and trucks. But it is just a stay of execution, not a reprieve.
Notice how they are throwing in the cards now that Toyota has passed them in both numbers sold and profits. They have nothing left now.
It will be gruesome. It was avoidable.
Replying to Pch101 :
It’s a bit like losing equity in your house — it isn’t worth as much as it used to be, but you still own a house and your cost of ownership remains the same. You’ve lost value, but you haven’t lost any cash.
You made a mistake here. You need to remember that GM doesn’t really have its own cash.
The so called “cash” that GM can use, are from debts backed by assets. So, when asset value drops, GM will have a huge problem borrowing more “cash” in the future. In essence, asset value = equity cash; lost value = lost cash.
It’s like, you have a house and you have taken all the equity out of it. And then, the asset value drops. You cannot borrow any more from the bank and the bank will likely foreclose you. The bank may force you to pay the upside-down gap, even if you keep up with your payments.
@wsn
Yes – the whole “just accounting maneuvers” argument is silly. Notice how, when things are going according to plan, these “accounting maneuvers” are considered as solid as gold — and how, when things go south they’re just not relevant and something one wanted to get rid of anyhow.
I’m not happy that GM is going to hell. I’ve been quite certain it was going to happen for a long time, the company just didn’t have its priorities right: they just didn’t love cars, or making them, and kept coming up with all kinds of other ways to make money financing and dealing with cars.
The GM management, from the early 90s onwards, have been brandkillers – in other words: value destroyers.
And if it takes the mother of all bankruptcies to put an end to it, then let it happen.
It’s like, you have a house and you have taken all the equity out of it. And then, the asset value drops. You cannot borrow any more from the bank and the bank will likely foreclose you. The bank may force you to pay the upside-down gap, even if you keep up with your payments.
That’s not inaccurate, but it’s still a mistake to confuse a charge off with a loss of cash.
I think that all of us in this discussion understand that GM’s ability to obtain credit is falling. My point is to point out the difference between a “loss” and a reduction in cash position — they are not the same thing.
At this stage of the game, cash is most important, because GM is running out of it and seems to have no way to replace what it is burning. The critical number is the burn rate.
Money to a corporation is like blood; if you have too little of it, you’re dead. GM is about on their last transfusion. They’re going to need a federal bailout, a gift from above, or else they’re going to file.
Mr. Farago has been well ahead of the curve in alerting the public to this fact. I’m betting that the feds will save them, but we’ll see if that happens. In any case, a bailout will ultimately prove him right, because it’s only this situation that makes the bailout necessary in the first place.
“Ok, come on with the August incentives, I want me a new Silverado.”
Hold out till September, they will pay you to take one away.
Everything is fine. Let’s pretend it’s just paper losses and have a beer!
Yep, nothing to see here.
But GM says they are burning cash at a rate of $1 billion per month. It can’t go on forever (Chapter 11 will end that). I think they should cut the brands to trim the future red ink, incurring today’s costs.
After all, a billion dollars in cash to kill Pontiac will only shorten GM’s life by one month (at the current burn rate), but it might help to right the boat if the boat doesn’t sink.
Gasoline is at about $3.60 a gallon in OK today. So where do gas prices start? Do they start in the central states and spread to the coasts or do they start at the coasts and spread inward?
Is the cost of gas that simple as starting somewhere and spreads? I ask b/c cheap gas will change the game back to Detroit’s favor. Of course they will instantly forget all their small car woes and go back to what they were doing a year or two ago and the sheeple will likely go back to buying larger vehicles.
What happens when GM files for bankruptcy protection? What responsibilities do they shed? Dot hose responsibilities stay gone (like credit card debt for a private person as I understand it) or do those ducks come back after the begin showing a profit again?
Will GM go broke and start lobbying for labor laws that favors them more and favors the UAW less? Are they counting on Obama and the “National Healthcare Plan” to be elected so that they can shed their legacy costs onto the taxpayers of America?
Just curious.
You made a mistake here. You need to remember that GM doesn’t really have its own cash.
Sorry, I forgot to comment on this. As of June 30, GM had about $20.5 billion in cash and marketable securities, so the company does have some cash.
Before anyone starts dancing on tables, though, that’s not much money, and they can’t run that account down to zero before hitting the wall. This is the bottom of the eighth inning.
Here’s a mysterious accounting item:
“Accrued Expenses & Other” +5.9B
It’s on page 34 of the slide set.
That’s a $5.9B positive boost to cash flow in Q2.
It helps to make Q2 cashflow much better than the huge loss number.
Does anybody know what this is?