By on November 22, 2010

Did you buy the GM share? If the answer is in the affirmative, then you should stop reading immediately. There are great new stories my Murilee Martin, just as a for instance.

Are we entre nous? Ok, here are the bad news: GM’s black hole in Germany, called Opel, turns out to be more humungous and more financial-matter sucking than ever imagined.

A few days after the GM share was placed (“7 times oversubscribed!”) Opel’s chief Nick Reilly told the ugly truth to Germany’s Wirtschaftswoche: Opel will rack up a loss of $2b this year. In the first three quarters (leading up to the IPO), Opel was $1.2b in the reds. In the last quarter, $800m of red ink will flow. And the worst is yet to come.

The restructuring is “dragging on” says Reilly. Opel wants to get rid of 8,000 jobs, 4,000 of those in Germany. This is expensive. To get rid of 2,600 workers in Antwerp, GM had to cough up $532m – a little bit over $200,000 per worker. In Bochum, 1800 jobs will be eliminated. Workers are holding out and refuse the offered six figure golden parachutes in wholesale fashion. They want more. Just getting rid of all these workers all over Europe can cost a few billions. Reilly knows that.

“Next year, we might have a problem if there is no change in the acceptance of our offers,” said Reilly. It doesn’t look like it. Reilly also admits that he has problems selling Opels in Germany. “That’s a special case, caused by the long debates about government aid.”

“Profits would be the best advertising,” says Reilly. That campaign is far away. Next year, Reilly wants to break even “before restructuring costs.”  The costs will be in the books. In big fat red numbers.

Before someone says “rounding error” again when talking about Opel numbers, bone up on your math skills: $2b in losses for 2010 are the same as the $2b in Q3 total worldwide profits GM had touted before the IPO. Rarely a rounding error.  Also, those happy days won’t be here again soon. When GM’s stellar profits were announced two weeks ago, GM CFO Chris Liddel warned that Q4 earnings would take a hit.

That was drowned out by the pre-IPO drumbeat. As reasons for a less than stellar fourth quarter, Liddel cited “a different production mix, the cost of launching new vehicles such as the Chevrolet Cruze, and the electric Volt, and higher engineering expenses for future products.”

Another possible reason for a disappointing Q4 makes the rounds in the business: In October, GM dumped a lot of high margin cars on dealer lots, and booked them as sales. Rumor has it that the unexpected “demand for high-margin pick-up trucks and crossover vehicles“ wasn’t entirely customer driven. But it surely goosed the numbers.

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24 Comments on “Reilly Predicts $2 Billion Loss For Opel...”


  • avatar
    Dimwit

    Same old, same old. It’s the reason I feel that the stock is toxic. There hasn’t been any substantive changes in GM. It’s been slimmed down and there’s a rotating CEO, but the hearts and mind core hasn’t moved much. Until you can get that changed there won’t be any difference between the “old” GM and the “new”.

  • avatar
    gslippy

    And people wonder why Germany fled from this great investment.

    Off topic, but I had the misfortune of seeing Disney’s “The Black Hole”; it is one of the worst films they ever made.

  • avatar
    mike978

    This is an interesting blog but does seem to have fixated on criticising GM and investors who freely bought shares – if they lose money it is called the free market. People complain when GM was helped out and they now complain when GM is selling shares on the open market. Consistency would be welcome.

    Please criticise companies for car errors not financial. GM is much better than say Toyota or Honda at the moment for designing and building great cars that aren`t merely appliances.

    • 0 avatar
      MikeAR

      You don’t get it, the point is that the cars can be the greatest in the world but they have to be able to sell them at a profit. This has yet to be proven and looks unlikely from here. Don’t champion the free market with one breath then applaud a government bailout with the next. Be consistent, you are twisting yourself into a pretzel trying to defend everything GM as perfect. It isn’t and someone has to be the turd in the punchbowl and ttell the truth about GM. No other car website is.

    • 0 avatar
      Invisible

      mikee,
       
      Perhaps GM should attempt to design some appliance then.  For example, the Honda brand is far far smaller than Toyota or GM, yet Honda’s market value is one of the highest of all corporations.
      It appears Honda knows how to be profitable, GM should take a few notes.

  • avatar
    psarhjinian

    You know what?  After seeing the kind of parachute that, oh, say Bob Nardelli, got I don’t feel the least bit bad about this.  Instead of a multi-million dollar kiss-off to executives who singlehandedly destroyed millions (or billions) of market cap and shareholder equity, we’re instead paying off workers who did nothing wrong, save work for a company that’s proven strategically incompetent in the past.  The net economic benefit is probably greater, too.
     
    Good for them.

  • avatar
    bunkie

    Since every site needs a contrarian viewpoint, I feel it must be mentioned that, despite how one might feel about GM, it may be a big mistake to bet against them. That viewpoint has nothing whatsoever to do with their products. What does support it is the very interesting provision in the deal that created the new GM that allows them to carry their pre-bankruptcy losses forward for the next few years. Unlike everyone’s elses favorite American car company, GM essentially faces no tax liablity whatsoever whereas Ford has to pay the Government its fair share. Considering the profits that GM has been posting despite the Opel losses, that’s a very large advantage. Combine that with their successes in China, leaner cost structure and the probability that the domestic market will improve dramatically in the next few years, people who cling to the “GM is a black hole” mentality may be very sorry that they didn’t buy shares.

    • 0 avatar
      jkross22

      Short term gain, long term loss.  Unless GM is gutted culturally, it’s still ‘old GM’.

    • 0 avatar
      bunkie

      That’s beside the point. The next few years (a lifetime from the perspective of the typical profit-driven investor) give GM a very real advantage. No one can say whether GM will survive in the long run. My entire point is that the emotional attachment one might have to the idea of GM as a consistent loser may very well stand in the way of making some money. As a taxpayer (and as I have said many times in this forum) it is in our best interests for GM to succeed so that we can be repaid in full with interest. Shaudenfreude, like revenge, tastes sweet but can tend to rot your teeth.

    • 0 avatar
      jkross22

      Bunkie, That IS the point.  Unless GM can fix what’s most broken, it will (continue to) be a perennial loser.   Please show me GM’s leader who can craft a vision and execute a la Mulally, or a speak to a plan in place to have a Hyundai like turnaround.
       
      This may come across like schadenfreude to you, but from where I’m sitting, it’s simply reality.

  • avatar
    mike978

    MikeAr – I wondered if you would come out of the wood work to get again complain and champiion your very transparent political beliefs. BTW this is car site not Redstate or Michelle Malkin!

    GM is making a profit in America and China. They are not in Europe, much like Ford (no bailout) or Toyota (minimal market share).

    By the way it is perfectly consistent to say they should make a profit in normal business and accept that a one time bailout in an exceptional circumstance was needed. I know you want to use any “facts” to hide the fact that GM’s turnaround and successful IPO (Government share holding down to 26-33% depending how you measure it) have occurred a) at all and b) much quicker than most people thought.

    I know you think it was best another 1 million people were unemployed. Compassionate Conservatism ah!

    • 0 avatar
      MikeAR

      I never claimed to be compassionate, I don’t pretend that I particularly care about anyone else. All I know is that big government has always become more intrusive and more controlling as it gains power (the bailout giving them control over 2/3s of the car companies). It’s inevitable that when the social retards that never matured past freshman year get power and run things. They always think they know better even though they have no real world experience.

      As far as GM’s profits in China, if i’m not mistaken they show the total profit before they split with their jv partners. That is Enron style accounting if true. They seem to be unable to tell the truth in little things like bailout paybacks so why should they be trusted in big things like their true financial state.

    • 0 avatar
      mike978

      Who are the retards running things that never got past college. I thought Bushy had left office. The current crop of people, whatever you may think of their policies, are hardly uneductaed retards.

      At least you are clear that you are selfish and don`t car about others. Glad you are not in my neighbourhood.

      You should worry about Enron accopunting because comapnies and the free market cannot do any wrong and any Government regulation or “interference” would just be terrible!

      Also the bailout worked. I recall people like you 2 years ago saying “Oh the Government will never relinquish control” or “oh the Government will tell GM what to biuld and we will all be in smart cars”. Neither happened. Move on from the paranoia. The Government stake is well below half and truck sales are doing very well thank you.

    • 0 avatar
      Invisible

      Sorry Mikee, the only profits GM has “shown” is via creative book keeping.

    • 0 avatar
      jkross22

      As has been said here before, the bigger the government, the smaller the citizen.
       
      Regarding profit, don’t forget that even though GM jettisoned ‘toxic assets’ to ‘old GM’, they still get to keep all those nifty tax credits.  This is great for GM, as they get all the benefit, but none of the downside, AND it has the added benefit of insulating themselves tax-wise from potential future profits.  But don’t worry… the rule of law regarding bankruptcies is being upheld.  Everything went exactly as it should have.  Nothing to see here… move along.

    • 0 avatar
      MikeAR

      Mike978, you need to grow up some. That Bush is retarded thing was stupid then and worse now, he hasn’t been President for 2 years. Two years, let go and channel your hatred to something more constructive. Besides he is certainly more intelligent than what is there now.

      As for the social retard comment, you don’t get it because you are one of those types that think that the government with them and people like them in charge can solve every problem because they are so much smarted than everyone who has come along before. News flash, you aren’t smarter or better. The government has no solutions that work in the real world and wants more and more control and money.

      A little information for you, if you can stand to see it. Through modern adminstrations, the split between private sector and government/education sector presidential appointees has been about 50-50. In this adminstration it is 92% government/academic. They have no experience and are too stupid and full of themselves to admit that they don’t know everything.

  • avatar
    jkross22

    Wow, and all along I thought that the Europeans had a more enlightened approach to labor unions.  Turns out, they’re cut from the same cloth as the UAW.  Bullying, obfuscation and overall inability to see reality for what it is.  Maybe they simply don’t read the newspaper or their employer’s financial reports?

  • avatar
    Mike Kelley

    Here is a good article on the subject:  http://www.investors.com/NewsAndAnalysis/Article/554424/201011191853/GMs-Big-Success.htm
    Even Mickey Kaus at lefty Newsweek is skeptical of this IPO:  http://www.newsweek.com/blogs/kausfiles/2010/11/19/gm-s-ipo-suckers-found.html

    • 0 avatar
      mike978

      So what if people are skeptical? The point was to sell shares, get money back for the tax payer, allow the market to decide the price/value of GM. If people choose to invest or not then it is an individual decision. No-one is making them buy.

  • avatar
    LALoser

    http://www.cnbc.com/id/40313505

    Accidently put this on another post…but, check it out.

  • avatar
    Carlson Fan

     

    http://www.cnbc.com/id/40313505
    Accidently put this on another post…but, check it out.

    Well there you go. It amuses me how people piss and moan on this web-site about how their tax dollars helped bail out GM. I’m mean really how much did this actually cost you? Do any of you own homes? I can attach a 6 digit figure loss to what mine is worth now vs what I paid for it in 2004. So I really couldn’t give a flying frap about the GM bail out. I’m little bit more irritated by the banks that gave people money they shouldn’t have, artifcially driving up the values of homes and creating all kinds of wealth for people that neither worked for or deserved it.

  • avatar
    tparkit

    “GM’s black hole in Germany, called Opel, turns out to be more humungous and more financial-matter sucking than ever imagined.”

    The size and future longevity of this black hole was very well-imagined by the prospective “buyers” who refused to participate unless they were made whole by long-term US federal government guarantees and subsidies. No river of US taxpayer cash, no deal.

  • avatar
    mike978

    Wow – MikeAR you need to calm down. I will comment this time and then get back to cars, after all that is what this site is for.

    Bush had good points and bad points (you’re the one with the anger against Obama). To say he is more intelligent than Obama is a stretch even for you. I suppose going to Harvard and Columbia and then teaching at Chicago in Constitutional Law is for dummies. With that I will get abck to cars – infintely more interesting.

    BTW enjoy redstate.

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