By on February 12, 2008

poor-piggybank.jpgGM is expected to announce greater-than-predicted fourth-quarter losses for their North American unit later today. While the exact figures aren't available yet, experts predict GM will report a loss of 64 cents a share, compared with earning 32 cents a share in the same quarter of 2006. Bloomberg cites "two people familiar with the [fourth quarter] results" who say the losses were due in large part to an upsurge in incentives in the fourth quarter as they tried to keep up with Toyota. Credit Suisse analyst Chris Ceraso concurs. "Higher incentive spending outweighed better than expected volume and mix" in GM's North American operation. They seemed to forget that Toyota had plenty cash on hand to fund the average $6.4k rebates on Tundras while they could ill-afford the average $6k they slapped on the hoods of their pickups to keep them moving. The exact damage to GM's bottom line will be announced later today. Watch this space.

UPDATE: Well, folks, it was far worse than anyone expected. MSNBC reports GM had the largest annual loss ever reported by an auto company: $38.7 billion; GM's previous record was $23.2b in 1992. In the fourth quarter alone, they lost $772m. Part of the loss was from their share of GMAC, which cost them $1.1b. GM also announced today they're following Ford's lead and offering buyouts to all 74k of their hourly UAW workers so they can replace them with lower-paid workers under the new contract.  

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29 Comments on “GM North America: Fourth Down and a Long Way to Go...”


  • avatar
    NickR

    There is a logical limit to how long they can sustain these losses isn’t there? Or is there some new math that I am not aware of. So much for the theory that Japan would never make inroads into the bastion of pick up trucks.

  • avatar
    holydonut

    I still think the positive earnings in Q4 2006 was simply that GM find a way to differ expenses into another quarter. The earnings-manipulation game is the only thing that gives the foolish Ford/GM investors a sliver of hope that their company can turn things around.

    Unfortunately, you can abuse the income statement only so many times before you end up conjuring a bullcrap sob story to sell the media and investors.

  • avatar

    In this mornings Toronto Globe and Mail its stated that GM wants to get rid of 74,000 people! because of the Huge loss that was reported first thing this morning Feb.12th. 2008!

  • avatar
    Nicodemus

    Seriously why is Wagoner in charge of GM? I don’t believe he has the competence to run a bath, let alone (what was) the largest car company on earth

    It would be really interesting to know exactly what goes on in their corporate strategy meetings.

  • avatar
    L47_V8

    $38 billion dollars!?

    Are GM’s assets even worth that much?

    How much cash do they have on hand, a $5 bill?

    Good Lord… Oh, but the “turnaround” is working its magic, eh?

  • avatar

    L47_V8
    $38 billion dollars!?
    How much cash do they have on hand, a $5 bill?

    The Bloomberg article states:

    In the meantime, GM is relying on a $30 billion cash hoard to help it pay for capital spending that exceeds $8 billion a year. Wagoner said Jan. 4 that the automaker will need more funds than it can generate this year, the third straight year of net cash drain.

    I’m no accountant, but to me when you have losses that exceed your cash on hand, you’re in big trouble.

  • avatar
    KatiePuckrik

    How much of this $38.7 billion loss is GM’s VEBA contribution and layoff fees? Maybe (and I’m sure we threw this idea around) that GM would want to get all those kind of one fees in 2007 so they could work 2008 with a clean slate.

    If someone (Maybe Mr Wagoner) could break this loss down for us, then we’d have a better picture of GM’s health.

  • avatar
    Redbarchetta

    Holy shit $38 billion. Chasing number 1 is going to be the end of these morons. If I was the head of my company and I had a loss of $300,000 in one year I would be booted out the door, he losses billions every year and on stupid deals and is still around PLUS get paid millions with HUGE bonuses.

  • avatar
    ttac2000

    The $38 billion loss is just an accounting figure, not a cash loss. They had to write down their accumlated deferred tax credits. The loss only exists because GM doesn’t have profits (and thus a tax bill) big enough to deduct from.

    All of their numbers are pretty convoluted at this point because of various “one-time” charges, related to GMAC, Reduced pension liabilities, selling of Allison etc etc.

    all things considered, the 4th quarter loss could’ve been worse. Not sure if things are getting better or if they have been able to massage the numbers for one more quarter.

  • avatar
    BerettaGTZ

    $38.3 billion of the $38.7 billion net loss is from the 3rd quarter deferred tax writedown. It was not a cash outflow. GM’s available cash on hand is $27.3 billion, which actually improved from 2006.

  • avatar
    johnny ro

    I am an accountant and I can tell you that GM earnings are bizarre to the non-trained GAAP accountant and the GAAP accountant both. $38.3 billion losses are due to de recognizing a deferred tax asset in Q3 if I remember right.

    What does this mean. What is a deferred tax asset.

    Its money they lost in prior years but were able to delay reporting the loss to wall street. Now the clock has run out on that trick and they finally run that 38 billion through their income statement. Prior to this it was one of their their biggest assets. Great, delayed losses biggest asset.

    When they lost money in prior years, for GAAP basis of accounting (what they show wall street), but made money for IRS basis of accounting (tax return) they declared an asset for the difference, times 35%. They justified the asset’s existence by insisting that in the future they would have some GAAP earnings in excess of IRS earnings, and pay no taxes to IRS on them, so it is a “good” asset. Its kind of like a pre-paid tax but not really.

    Now enough time has passed that they can no longer argue, within this other-dimension-wierd GAAP logic, that they will have their previously anticipated future earnings for GAAP. They will say that this is not so, they are writing off the asset because of an arbitrary limit on numbers of years they are allowed to keep such an asset which has now been exceeded. Blame their auditors maybe.

    So, its money they lost in prior years, finally admitted to in 2007.

    GM wants you to focus on their operating profit, which carves out all surprises (flood fire strike earthquake) and focuses on what amounts to their budget. Did they meet their budget for same-store year over year? Actually this is how they manage their business and its not a bad idea. Just watch out for those special items they exclude from their budget.

    The reality is the accounting rules are designed by committee (FASB), whose brilliant people have good arguments for yes and no to every feature of each rule. Then they settle debate with a vote. Many GAAP rules just don’t make sense, like this deferred tax asset stuff, until you stare at them for long hours into the night.

  • avatar

    What's really scary is that GM is hemorrhaging money, yet they're banking their reputation (what little they have left) on a car that they're pouring billions into, rushing into production and taking shortcuts on, but will lose money on every time they sell one for several years after it hits the market. Toyota was fiscally fit enough they could subsidize the Prius for 10 years, until it started turning a profit for them. Does GM have the wherewithal to do the same with the Volt? Or will it be what takes the company (or at least the North American unit) down?

  • avatar
    jthorner

    I have long belived that much of the chicanery done by financial accountants could be fixed with a simple rule: The numbers you use to report income and taxes to the IRS should be the exact same numbers you use to report financials to the investing public.

    Nearly all companies keep two sets of books, one for the public and one for the IRS. The financial engineering which goes on to make things look as good as possible to the investors and as bad as possible to the tax man is mind boggling.

    At the very least every public company should be required to publicly disclose all of it’s tax returns.

  • avatar
    Redbarchetta

    jthorner that’s a good idea, except getting rid of the “chicanery” would mean they wouldn’t need the army of accountants they have and they would never allow something like that. Especially a company like GM run by accountants, not very good ones either since they keep lossing money.

  • avatar
    Gardiner Westbound

    I love it when a plan comes together! – Col. John “Hannibal” Smith, The A-Team

  • avatar
    SkiD666

    I wonder what the ‘real’ numbers would be if all the one-time expenses (3rd quarter writedown, Delphi payout, UAW buyouts, GMAC mortgage loses, etc.) and income (asset sell offs, etc.) were removed from the reported numbers.

    It looks like the automotive part of their business is improving, but still looks like they have a couple of years of reorganization to go yet (wonder where the VEBA money will come from?).

  • avatar

    @johnny ro

    Thanks for that!
    Am I then right in assuming that the 772million in Q4 were operational losses? Couldn’t get that number to parse with the 38billion.

  • avatar
    SherbornSean

    Look, a headline of a $38.7B loss is certainly scary, but we need to look at its components. Of that $38.7B, $38.3B was for a technical accounting adjustment that GM made, based on their expectations of use of future tax credits. Only $400M was actual operating loss.

    So essntially, GM has $200B in annual revenue, and lost $400M last year, for a -0.2% margin. And now they announce further job reductions, which will likely cut their costs by another ~$5B. If they can keep their revenues (which are growing, by the way) then GM will finish 2008 as a very profitable company.

    I think there is good reason to be optimistic on GM’s finances. It’s Chrysler that is going down the tubes.

  • avatar
    tony-e30

    @ Frank Williams:

    In your professional opinion, if you’re able to answer this, why do the top execs at GM still have employment there? I can’t believe that any other line of business would tolerate such a constant downward slide without major shake-ups at the top. Why is GM so different, and what do you think it will take for them to have a change up top?

    Thanks

  • avatar
    jolo

    KatiePuckrik asks:

    How much of this $38.7 billion loss is GM’s VEBA contribution and layoff fees?

    I could be wrong, and I hope someone will let us know, but I don’t think any of the reported losses are for the VEBA and/or the layoffs and/or Delphi’s bailout, etc. Anyone know for sure?

  • avatar

    tony-e30
    @ Frank Williams:

    In your professional opinion, if you’re able to answer this, why do the top execs at GM still have employment there?

    You’re asking the same question that many other people are asking. The only reason I can think of is that like GM’s senior executives, the Board of Directors is happy as long as they get their paychecks, regardless of how many sales they lose or how many people they have to fire. It’ll take either the Board not getting what they want or the stockholders getting tired of losing money and revolting before anything is done to change the current regime.

  • avatar
    tony-e30

    Thanks for the reply, I think the time may be right to move to Detroit and open my Pitchfork and Torch Supply Emporium.

  • avatar

    LOL great picture

  • avatar
    GS650G

    Who would buy a car from a company that is going down by the stern? I think GM is in a race to the bottom with Cry-sler and Ford. When the stock peaked out at 40 dollars right after the faux strike was settled, that was the time to sell and get to the life rafts.

    Any GM employees not looking for another career have only themselves to blame.

  • avatar
    hltguy

    As another poster said here, the big loss was previous year’s losses having to be finally disclosed in 2007, sort of like the pile of dirt under the rug that is finally uncovered. But of great importance here is the perception amoung the public who will see the headline of the massive losses at GM and decide not too risk their money on a company reported to have lost gazillions of dollars.

  • avatar
    CliffG

    Not to be a broken record on anything, as I have pointed out this before, but GMNA has not had positive cash flow out of their automotive operations in literally over a decade. What positive cash flow they enjoyed in NA was due to GMAC. Oh boy, now they own 50% of an entity that is running cash losses. If GM is going to remain a viable company, at some point they are going to have to enjoy positive cash flow out of their NA operations. And that is nowhere in sight. Good luck cutting your workforce to get there when you still have 7000 dealers to feed. Don’t worry though, Ricky will not go hungry.

  • avatar
    Joe C.

    ExxonMobil and GM need to merge (officially, which would then confirm the suspicions of the conspiracy theorists).

    Problem solved!

  • avatar
    EJ_San_Fran

    GM is taking some truly bizarre losses.

    How about a charge related to some provisions of old labor agreements in 1999 and 2003?
    GM describes it as “expense for the remaining portion of unamortized prior service cost from the plan amendments entered into as part of the 1999 and 2003 labor contracts.”

    This arcane topic costs them 1.5B loss in 2007!

  • avatar
    armadamaster

    What a shock, GM is STILL failing. The same old game plan since the late 1990’s of investing in your fullsize truck and SUV programs at the expense of your same old rebadged and tired FWD car lineup while tossing in the occasional “niche” car has failed again. And just today I read NO TRANS AM for Pontiac, way to fail GM!

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