By on February 18, 2013

GM’s European dealers had their run-ins with the company lately, but wait until their read GM’s annual report to the Security and Exchange Commission. In its 2012 10K, GM writes about its European dealer network:

“To determine the estimated fair value of the dealer network, we used the cost approach with adjustments in value for the overcapacity of dealers and the sales environment in the region. We determined the fair value to be $0.

Wait, there is less …

Further to our story about the financial juggling acts performed to arrive at GM’s $4.9 billion net profit, a few commenters asked how GM arrives at these conclusions. The 10-K has an answer: They make them up. Or rather, in accountant’s speak:

“Determining the fair value is judgmental in nature and requires the use of significant estimates and assumptions, considered to be Level 3 inputs.”

And what’s a “Level 3 input”?

The Financial Accounting Standards Board (FASB) has the answer: “Level 3 inputs are unobservable inputs for the asset or liability.” It’s whatever management says.

For folks who don’t want to sift through GM’s earnings release, and its ”dizzying array of accounting gains and losses for tax credits” (CBC). Seeking Alpha did a little sifting of its own. The analysis comes to these conclusions:

  • GM arrived at the $4.9 billion gain by assuming a $27.1 billion write-off on goodwill, off-set by an assumed future tax savings of $34.8 billion
  • Ignoring the write-offs of assumed goodwill, and ignoring the assumed “earnings” from future tax savings, GM had an operating LOSS of $3.218 billion in 2012
  • Operating costs rose 8.47% in 2012, while sales only grew 1.32%.

Seeking Alpha’s Spreadsheet


Also of note: Past losses can be used to off-set your future tax liability, fair enough. After a bankruptcy, these tax losses are usually wiped put. They turn into assets and are given to the creditors. Just like a bankruptcy discharges debt, it also makes loss carry forwards disappear, also fair enough. The TARP shenanigans unfairly protected the carry forwards, creating what Elizabeth Warren, former chairwoman of the Congressional Oversight Panel called a “stealth bailout.”

Harvard professor Mark Ramseyer called it “an arcane and hard-to-follow way of disguising billions of dollars paid to firms that, for whatever reason, are politically favored.” If GM can save $35 billion in taxes other companies would have to pay, then this is just another gift, taken from your pocket.


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54 Comments on “The Juggling Show: GM Calls Its European Dealers Worthless, Receives A $35 Billion “Stealth Bailout”...”

  • avatar

    I really want GM to succeed, but wish all this nonsense was above board. Accounting shenanigans like this are an embarrassment. But I don’t think the general public is paying attention, so it probably won’t matter.

    I’d feel a lot better if somebody could point out several other — or even two — large companies that were allowed to carry forward losses after bankruptcy.

    • 0 avatar

      AIG would be another one …..

    • 0 avatar
      doctor olds

      These are not shenanigans, they are common practice, and the company really did make $7.0B EBIT. New GM was not “given” the carry forward tax credits, they “paid” for them by agreeing to continue funding the pension plans which otherwise would have collapsed the PBGC and cost taxpayers far more. It was a good deal.

      It should be obvious that Berkshire Hathaway’s big bet on GM has a lot more merit than a blogger who wants to stir up the weak minded with ridiculous spin.

      • 0 avatar


        your many points are most often well taken and backed up with facts, as are mine. I can’t help but feel though that you and I both have preconceived notions about GM and those ideas slant our expressed opinions and views. as we are diametrically opposed the chances are slim we will ever have anything more than a sliver of agreement. does make for some interesting reads along the way eh?


      • 0 avatar

        @Buickman & Doc…..Yes both you guys make for a great read. I have a dog in this fight {GM pension}. I read and think about every word written on this subject.


      • 0 avatar

        It really all depends on a person’s perspective. For those who believe in GM, it can do no wrong.

        I was that way at one time. I was loath to divest myself of GM stock et al on the advise of my broker in 2007. I was a believer at that time. “What’s good for GM is good for America” was the catchphrase of the century.

        Fortunately for me and mine I saw the light just in the nick of time. GM in the past did very well for me, thank you, but that does not limit me from understanding that the “past is prologue”.

        If a person believes that GM is doing great, that’s cool. I have no problem with that. They should rush out and buy a new GM vehicle today to support their cause.

        But the reality is that the majority of new car buyers do not share that sentiment and that’s why they buy anything but…..GM products.

        mikey, don’t worry about your pension. It is safe and secure. The US Treasury is backing GM from now until eternity, regardless of who is in the White House or who controls the houses of the US Congress. In turn GM will honor its commitments in the US, Canada, and all over the globe.

      • 0 avatar
        doctor olds

        @Highdesertcat- “But the reality is that the majority of new car buyers do not share that sentiment and that’s why they buy anything but…..GM products.”
        As a matter of fact, a larger majority of buyers choose anything but every other brand except GM which remains the largest seller.
        GM’s global sales have increased from 8.7 million to 9.5 million in the last two years. Hardly indicating nobody wants them. The Chevrolet brand sold the most volume in history last year. btw- not a one of them is a wuling.

        They sell more than anyone else here and in China. They sell far more vehicles outside of Japan even than Toyota, who enjoy a 2,000,000 to approximately nothing advantage over every single non-Japanese carmaker, including Herr Schmidt’s beloved VW.

        GM is doing very well and show plenty of signs of getting stronger with lots of new products this year. The businesss results are real, regardless of how they are being spun here. Not saying GM can do no wrong, but these facts prove they aren’t going down the tubes.

        If anyone wants to review the 10K for themselves it can be found here. It is quite lengthy.

      • 0 avatar

        “It is safe and secure. The US Treasury is backing GM from now until eternity, regardless of who is in the White House or who controls the houses of the US Congress.”

        I wish the best to those whose pensions/401ks were in the cross hairs a few years back, but I fear the “system” can only sustain so much. How many other sick giants are out there with similar obligations?

        I read a comment on Yahoo or one of those sort of sites a while back which basically argued the UAW two tiered employment system was a huge mistake in that it significantly short changes the next generation. So when tier one workers want to sell it all at top dollar and retire to paradise, the replacement generation literally cannot afford to do so at half the pay, so another nice debt bubble gets slowly blown up. This article analyses the problem better than I.

        http://www.remappingdebate DOT org/article/darker-future-tier-2-workers?page=0,1

        I’m not specifically knocking The Big Three, UAW or anyone else for that matter, but this “tier 1/2” type pattern exists in other industries and its not sustainable.

      • 0 avatar
        doctor olds

        @mikey- They are right, you don’t have to worry about your pension, but not for the reasons they cite. It is adequately funded such that GM will not even have to put more into it this year. More importantly, the company is on a very good footing to continue strong profitability and completely fund pensions.
        The idea that the company is backstopped by the government is disconnected from reality. No cash has flowed from the government to GM since the bankruptcy and it is very unlikely that the company would be protected if it indeed does go down the tubes as the irrational doomsayers predict.

      • 0 avatar

        Thanks Doc… I’ll sleep better tonight.

      • 0 avatar

        doctor olds, I am a lot more cautious than you are when it comes to how well GM is doing currently, as opposed to how well Chrysler is doing these days. There’s a success story!

        So Chrysler had a change of venue, so to speak, where GM plods on as it has before, or so it seems to many. Creative accounting goes a long way, but at some point all the creativity cannot keep a company alive, just like in 2009. Hence the past is prologue.

        Now, I understand how and why GM took the write downs and I think it is great for GM that the IRS will allow them to do that because without all these liberal off-sets, GM’s balance sheet would look drastically different. Maybe we can agree on that.

        To say that these off-sets will tidy GM over until their new crop of cars and trucks suddenly make GM a viable, self-sustaining profitable company again, is stretching it a bit, IMO.

        To get back to Chrysler: if we, the people, had liquidated or otherwise peddled GM to some foreign entity like we did with Chrysler, I believe that GM would be doing as good as Chrysler is doing now.

        That’s the way I see it, and if we contrast and compare the two, what we did for Chrysler made them what they are today, a successful, viable and profitable, self sustaining auto manufacturer. While what we did for GM made GM what it is today, creative accounting and all.

        I never was a supporter of the manana theory where everything will be better tomorrow. Tomorrow never comes for many. Today is what counts!

      • 0 avatar
        doctor olds

        @highdesertcat- I understand your reluctance to believe GM is doing well based on a long history of promises that the worst was over that turned out to be untrue.

        At the same time I do not understand denial of the reality that new GM in three years has generated EBIT of $23.7B, net income of $17.1B, spent $20B+ on R&D (majority in US)and $7B in US capital improvements.
        The icing on the cake, they had $37.2B in liquidity at 2012 year end.
        GM does not expect to have any mandatory contributions to the pension funds for 5 years, and plan no contribution this year, since fund investment returns are good.
        Warren Buffett sees the value in GM stock due to the company’s performance. They don’t have to wait for new product, they are already doing well. The new products are just a plus.

      • 0 avatar

        doctor olds, it’s not denial of the reality that new GM has generated income. Even the most ardent GM haters will have to agree that GM is doing better now than in March 2009.

        It’s a question of “Is it enough?” and “Should GM have done better for its displacement in the marketplace as compared to Chrysler in the same time frame?”

        Warren Buffet sees the value in GM stock but he also knows full well that his investment is a safe bet, backed extensively by the full faith and credit of the United States.

        I’ll let the success of the new product speak for themselves through the number of sales vs profits. Let’s not forget about GM’s European alliances.

  • avatar

    Alright so it’s time to invest now? ;)

    • 0 avatar
      doctor olds

      @KrisZ- Warren Buffet sure thinks so, and he has certainly made better investments than any of us!

      GM was criticized for adding the “goodwill” amount to their balance sheet when it was re-organized, though that was acceptable accounting practice. It was known that the amount would be written down as time went by, as is now occurring.

      • 0 avatar

        doctor olds – are you a CPA? GM’s financials are not GAAP. Do you know what that means? That Deloitte doesn’t have to sign off on them. GM can roll the numbers around however they want.

        Goodwill is a made up number that accountants use to create a company’s value. If the US Govt controls the SEC and the SEC is told to leave them alone then GM can say whatever they want.

        Warren Buffet makes good investments because he is an “insider” if you know what I mean.

      • 0 avatar
        doctor olds

        @Abankthatmakescars- You are in error. From GM’s 10k filing:”The consolidated financial statements are prepared in conformity with U.S. GAAP,…”

        You are confusing the regional details prior to consolidation, but the company’s financial statements are confomant with GAAP.

    • 0 avatar

      “so it’s time to invest now?”

      A great time, if you could, because GM will never go bust again. The US government has its back with the entire faith, full credit and goodwill of its Treasury behind GM.

      I can’t think of a safer investment.

      Someone mentioned elsewhere that Warren Buffet was no fool. I agree. Investing in GM now is like icing on the cake for any investment portfolio. You can’t lose. It’s like investing in Treasury bonds and the like. Guaranteed no risk!

  • avatar

    Not that I ever considered this site to have journalistic integrity, but yeah this is a new low.

    “GM arrived at the $4.9 billion gain by assuming a $27.1 billion write-off on goodwill, off-set by an assumed future tax savings of $34.8 billion”

    No. That is not how GM arrived at a $4.9 billion profit. This actually cut profit by 500 million. The real profit excluding all special items is $5.4 billion.

    “Ignoring the write-offs of assumed goodwill, and ignoring the assumed “earnings” from future tax savings, GM had an operating LOSS of $3.218 billion in 2012”

    Again not true. The total charges GM took were $35.5 billion. The tax allowance was $34.9 billion. Net cash from Operating activities for 2012 is $9.6 billion. Earnings before taxes, interest and special items is $7.9 billion.

    Deferred Tax Valuation Allowance Released 34.9
    Goodwill Impairment Charges* (26.9)
    GME Long Lived and Intangible Asset Impairment* (5.2)
    Pension settlement* (2.2)
    Premium to Purchase Common Stock from UST* (0.4)
    GM Korea Wage Litigation* (0.3)
    Redemption of GM Korea Preferred Shares (0.2)
    Impairment of Investment in PSA (0.2)
    Loss on GM Strasbourg Sale (0.1)
    Various Insurance recoveries 0.1

    I understand the objective is to appease the haters. Opinions and hate are fine. Deceptive/incorrect reporting is not.

    • 0 avatar
      doctor olds

      @alluster- +100! This site, at least Herr Schmidt’s posts, are often loaded with disinformation and obfuscation when it comes to GM.

    • 0 avatar

      Mr Alluster: If you think the goodwill accounting was wrong, then better complain to GM, not here.

      The 10K says: “In the year ended December 31, 2012 we recorded Goodwill impairment charges of $27.1 billion, the reversal of deferred tax valuation allowances of $36.3 billion in the U.S. and Canada, pension settlement charges of $2.7 billion and GME long-lived asset impairment charges of $5.5 billion.”

      My comment referred to goodwill charges only. I also included a handy spreadsheet, for those who don’t want to click to Seeking Alpha.

      • 0 avatar

        Yes, thanks Mr. Schmitt for the comparative income statements.

        I dont want to get into any war of words here (I’m at work and can’t do any deep dives into the 10-K). But if one were to remove just the 27.145 billion in GW impairment charges, you’d still have a loss of -3.218 billion (oper Inc w/o GW in chart). I think that long-term, this is the true comparative number.

        The 27.145 GW Impairment and -34.831 Income tax expense is just noise – no real indication of operations. The “real” impariment is likely less: Management is incented to get this all behind them with one big write-off. Instead of having to trickle this out over the quarters to come.

        Is the concern here that GM can tell the general public “we made money”? If so then OK. IF the concern here is GM’s overall health, then GW and tax benefit is not that indicative.

      • 0 avatar
        doctor olds

        @Buickman. Actually, I have a long studied interest and understanding of GM from 1959 or so, I guess. Lots of family members did well in GM and other Corporations. I think Michigan produced 60% of the worlds cars at the time.

        I am always pleased to be corrected when my opinion is based on factual error. We are awash in disinformation presented as facts. I am confident of my view of facts, again pleased to be corrected when I am in error, and also confident of that of my analysis of what they mean.

  • avatar

    Dear Bertel, my apologies. I read the post on my phone which does not show the spreadsheet and replied on my computer without reading the post. The cost and expenses provided by seeking alpha does not break down one time charges other than goodwill and tax benefits. The breakdown is in my post above. If GM really had a net loss of $3.2 billion, it would have resulted in a huge sell off. Automotive net cash provided by operating activities is a more accurate measure that excludes all special items. They need to get these special items off their books and stop with the shenanigans. With most off this BS out, hopefully the coming quarterly and yearly reports will reflect the true health of the company. I can understand why GM did this in the first place. In 2010 when the company was on the ropes, they probably added these to the balance sheet to make the company look bigger than it really is. Now with three straight years of profit totalling $26 billion or more, there is less need for fictional items. Same goes for EU dealerships. They are worth diddly-squat anyway. Better to declare $5.5 billion in assets as crap when the affect on bottom line is minimal due to the tax benefit.

    GM is unique on its ability to use tax breaks after bankruptcy for losses incurred before bankruptcy. AIG didn’t declare bankrupt though it did receive a bailout.

  • avatar
    doctor olds

    The Spreadsheet Mr Schmidt refers to is a creation of a blogger at the financial website Seeking Alpha.

    I trust the fact of Warren Buffett investment choice better than the spin of some blogmeister.

    It is not a financial document and can be be relied upon.

    • 0 avatar

      Actually, the spreadsheet is a summary of the Company’s 10-K. While some errors occur and are often corrected later (and ASAP), the 10-K is the best instrument available to outsiders in evaluating the condition of the Company.

      If it can’t be relied upon, then Management and the Audit partners face stiff fines and/or jail time.

      • 0 avatar
        George Herbert

        It may be partly accurate but not complete enough; the details above in comments, for example, aren’t on the Alpha spreadsheet.

        Big company finances are arguably too complicated and the disclosures opaque if you don’t learn the finance rules and tax laws. But that’s a different question than the underlying facts of what GM actually did.

        I’m going to go read the quarterly statement. Only way to be sure.

  • avatar
    doctor olds

    [email protected] lease provide a link to the 10-K page that shows GM had an operating loss. Help me understand Buffet’s move if the company is weak.

    • 0 avatar

      I tried doing this twice already and it wouldnt take

      I dont pretend to understand Mr. Buffet’s “move”

      But please see my comments above. The financial statements are supposed to give investors good information so they can make good investment decisions (ideally). Management wants to give out as little information as possible but hire auitors to keep them honest.

      If you really want to know what is going on, you’d have to see what was in the product development pipeline.

      I would SUPPOSE Mr. Buffet knows people who know the product development pipeline.

    • 0 avatar
      doctor olds

      @gmichaelj- I had already looked at the 10K and find no suggestion whatsoever that the company is losing money. Didn’t you say it is the best instrument to judge a company. Looks pretty damn good, actually. It is no surprise Buffett likes the stock. It is a good bet.

      • 0 avatar

        Once again:

        “But if one were to remove just the 27.145 billion in GW impairment charges, you’d still have a loss of -3.218 billion (oper Inc w/o GW in chart). I think that long-term, this is the true comparative number.”

        You need to go back to the 10-K and look in the income statement. The data provided in the chart above is from that document.

        Also, I’m not sure Mr. Buffet’s investment is a vote of confidence in current GM. He may be trying to gain enough clout to “fix” the place, and cash out later.

  • avatar

    With all of this noise, the key element of GM’s long term stability is based on one simple question: Are they actually making any money from selling cars and trucks? The problem with GM prior to the bankruptcy is they weren’t. They were a finance company that happened to be in the car business too. Which is why when the financial world blew up in mid -08, they came completely unglued. Can GM make money on selling cars and trucks without exposure to sub-prime financing and at what level of market share is their long term stability determined? Remembering all those folks on TTAC in 2007 telling Mr. Farago that the stock market was valuing GM at $30 a share so therefore the GMDW was nonsense makes me pause before I jump on the GM enthusiast wagon, even though I would prefer they stay in business. Hopefully they have gotten 90% of the paper crap out of the way now, so maybe next quarter we will get a better and cleaner report.

  • avatar
    doctor olds

    @CliffG- GM did earn close to $3B some years from GMAC but only owned 49% of it at the time of bankruptcy. GMAC was not the biggest problem. The credit freeze that collapsed the car market here was.

    GM, Chrysler (and very nearly Ford) were forced into bankruptcy by the financial crisis of October ’08 that collapsed the North American car market so severely that even Toyota was dragged to its first ever annual loss. Toyota had much less exposure to North American than GM, by far the biggest player at the time. None the less, Toyota went on to lose even more money than GM in the first Quarter of ’09. You can interpret those facts how you want, but they are facts.

    I see the current balance sheet and income statement and agree with Buffett.

    • 0 avatar

      Um, not quite facts. By 2008, GM had been hemmoraging cash and steadily losing market share for years. Daimler and Cerberus had turned Chrysler into a basket case. The financial crisis didn’t cause GM’s or Chrysler’s bankruptcies, but only accelerated by a few years what was already inevitable.

      • 0 avatar

        Agreed. I recall a Time article I read in… hs junior year/1998… where it quoted a GM executive in saying something to the effect of “We knew in 1996 the primary goal of the corporation was not profit, but to keep the corporation going”.

    • 0 avatar

      @Dr. Olds:
      “@CliffG- GM did earn close to $3B some years from GMAC but only owned 49% of it at the time of bankruptcy. GMAC was not the biggest problem. The credit freeze that collapsed the car market here was.”

      In 2001, GMAC contributed a net profit of 1.9 billion, GM had a consolidated profit of 0.6 billion
      In 2002, GMAC contributed a net profit of 1.87 billion, GM had a consolidated profit of 1.7 billion
      In 2003, GMAC contributed a net profit of 2.8 billion, GM had a consolidated profit of 3.8 billion
      In 2004, GMAC contributed a net profit of 2.9 billion, GM had a consolidated profit of 2.7 billion
      In 2005, GMAC contributed a net profit of 2.3 billion, GM had a consolidated loss of 10.4 billion
      In 2006, GMAC contributed a net profit of 2.1 billion, GM had a consolidated loss of 2.0 billion

      So for all years except 2003, GM would have been way under water without GMAC. Beginning in 2005, even GMAC’s generous 2 billion could not keep GM from losing money. Then, in a desperate move in 2006, GM sold 51% of its cash cow to Cerberus.

      If you remember, those had been great years for the auto business. The credit freeze came later …

    • 0 avatar
      doctor olds

      What I wrote is factual. I have to agree that GMAC was carrying the corporation and my comment was incorrect. I am not denying GM lost some money in the years leading up to the collapse, though a huge share was cashless company value write down caused by a change in accounting principle that took $43 billion of income away.
      The company was taken down by the $15B/ month cash burn that started in October 2008 as a direct result of the whole market collapsing.
      Its unknown and unknowable what would have happened if not for the market collapse. What is true is that the reborn profitability at Ford, GM and Chrysler is primarily due to the break through UAW contract of 2007. GM alone has been relieved of $8billion a year burden for UAW retiree healthcare and Jobs bank. Otherwise, all companies would still likely be losing money.

      • 0 avatar

        The facts are that GM’s income statement shows an operating loss (disregarding the adjustments, which are accounting entries, not cash) of about $3.2 billion. Gross margin (revenue less cost of goods sold) in the auto business fell from $18.5 billion to barely $10 billion – and those gross margin dollars are what a company needs to pay all of its other expenses.

        Shareholders equity in GM went into deficit in 2006. The loss in 2007 was greatly exaggerated by the accounting change, but would have been a loss in any event. And in the fist half of 2008 (ending almost 3 months before Lehmann Brothers), GM reported an operating loss of $13 billion, while income from continuing operations was a loss of more than $18 billion.

        The company was doomed by that point. The events of September/08 and beyond merely accelerated the inevitable.

      • 0 avatar
        doctor olds

        @ect- You are relying on the spreadsheet here, which is misleading. Look at the 10k and you see EBIT of $7.9 billion and net income of $4.9B before adjustments.

      • 0 avatar

        Instead of jumping up and down and shouting that this is not GM’s sheet, why don’t you say what exactly is wrong with it?

      • 0 avatar

        Actually, I went to the SEC site and looked at the financials in the 10-K – which have the same numbers as in the Seeking Alpha spreadsheet, presumably because that’s where Seeking Alpha (whoever they are) took them from.

        The number you quote as net income is not that – it is net income attributable to common stockholders. Reported net income is $6.1 billion, but it results from a number of non-cash adjustments to operating income. It’s an accounting result, not cash.

        The fact remains that GM earned about $10 billion of gross margin, (real dollars), and overhead costs (also real dollars) of $13.5 billion. Other operating costs and interest income don’t change that appreciably. At an operating level, GM lost over $3 billion in 2012.

        A series of non-cash adjustments turned that into a reported profit at the net income level, but – again – these adjustments, and the reported profit, are not “real dollars”

  • avatar

    I wonder if anybody on the TTAC staff is really qualified to comment on GM’s accounting? Bertel, with all due respect, doesn’t seem to be (or did I miss the BWL-degree in the auto-biography ;-) ). I take it from the comments a few of the best and brightest here might be knowledgable in these things. It would be great if an expert could step forward and dig into the actual filings by GM (and Ford and Chrysler). What we currently have as site content on the matter is second-hand reporting of content from some other sources, who all may well have their own agenda. It would be great for TTAC if it could offer its own analysis based on its own know-how on these matters. Currently, I am not sure it can.

    • 0 avatar

      It’s published data in the public domain. Anyone can view it and comment on it. Depending on a person’s proclivity the comments can be supportive, or not.

      For a more indepth analysis visit the various financial sites and see how brutal comments can get. This is mild compared to the financial sites where they play for real money.

      • 0 avatar

        I generally agree with your post. This information, as well as any other 10K, is 100% in the public domain and available for some very dry reading. When it comes to reading the tea leaves in depth, it does take expertise. As a very highly skilled layman (that is a complement if it isn’t clear) Bertel is definitely qualified. Would I make him CFO of company XYZ that was public traded with international operations? Over my dead body – unless as others have noted, I missed his masters in finance and undergrad in international business.

        Read into that what you want for qualifications to provide in depth analysis.

      • 0 avatar

        APaGttH, you might want to google Bertel Schmitt and visit his Linked-In page before you pass judgement. Bertel can hold his own.

        And besides, if a person is in the top spot, they simply hire the expertise they need to help them in the decision making. That’s why a CEO and the BoD rely on a CFO to provide the necessary recommendation to make a prudent business decision.

  • avatar
    doctor olds

    The 10K clearly shows that GM made $7.859 Billion EBIT on operations which was taken down to $6.188 Billion net after adjustments. Of that, $1.329 Billion went to preferred stockholders, leaving a net income of $4.859 Billion. The company is generating solid profit on operations.

    GM is a publicly traded company with transparency in its results.

    • 0 avatar

      Several things jump out at me looking at the numbers: GM brought in $152.2 billion in revenue in 2012 while it cost them $155.5 to run the company for 2012. The only reason they were able to show a net profit was from goodwill and income tax benefits. Based on the table above they lost money on operations.

      Also when you dig into the GM earnings release you will find that at the end of 2011 GM had $16,071,000,000 in cash and equivalents and $16,148,000,000 in marketable securities while at the end of 2012 they had $18,422,000,000 and $8,948,000,000. In 2011 their deferred income taxes were $527,000,000 while in 2012 they jumped to $9,429,000,000.

      So they went from $32 billion in cash and marketable securites in 2011 to $27.5 billion in 2012 while revenue increased $2 billion and expenses increased $12 billion while earning $5 billion? That doesn’t add up unless you start inserting accounting mumbo jumbo.

      At this point their short term liabilities are still roughly the same as 2011 while pensions and GM financial debt has risen about $6 billion.

      GM is certainly not where they were in 2008/2009 but they may not be doing as well as they would like us to believe.

      • 0 avatar

        I’m still searching for a motive. If GM has losses to shield its profits, but it declines to do so, they pay taxes this period or they extinguish credits. The reward for booking fake profits is real taxes payable. Furthermore, the income statement looks appropriate, given the additional intangible write-offs GM booked during the period.

        In a normal bankruptcy, the loss carry forward is distributed to the creditors, according to this article. If the creditors become equity holders (UAW, US GOV) during a negotiated bailout, what asset will the former creditors record? Goodwill?

        I don’t understand the point of this article. The UAW were protected. Everyone else was told to pound sand. This is just a continuation of the ‘negotiations’ during TARP bailouts. I don’t see any new problems coming to the surface.

      • 0 avatar

        As someone mentioned earlier, GM spent $17 billion in R&D. If they had a cash loss of $3.2 billion, they could have made it up by reducing R&D spending, but would that make long term sense? For a going concern, spiting itself by starving future product development makes less sense than using accounting legerdemain to hide a one year loss. And why would they want to hide a one year loss?

        The stock price is depressed because everyone knows the government will eventually dump its massive share. Analysts looking at the financials will kill a stock if there’s a loss rather than a gain. In the loony ’90s, a company had to not only show a quarterly profit, but it would have to be an increased profit over the previous quarter, or the analysts would hammer the company and the stock would drop.

        We’re past those days, but analysts and their investment recommendations still can make or break a stock’s price, causing all kinds of hand wringing over “problems” real and imagined. Cyclical retooling in the auto business causes short term losses for the company as a whole, just as short term drops in sales precede model changeovers.

        Buffett is taking a cold-eyed look at a company that still has economies of scale, valuable nameplates, market penetration, a relatively powerless union on its way out, a cash hoard, major R&D investment that will lead to new products for sale, freedom from formerly crushing debt, and the prospect of the government slowly divesting its stock. That all adds up to a likely profitable company in the future with large stock price gains. All investing is risky, but Buffett has made money by getting in early and taking the long view, and that’s what he’s doing with GM.

  • avatar

    You guys are concentrating on all the wrong things. There are two numbers that matter- sales and expenses. GM sold 152 billion dollars worth of cars (and other income) and spent 155 billion dollars doing it. Everything else is smoke and mirrors. GM can only privatize its earnings and socialize its costs for so long. This company is NOT PROFITABLE right now, four years after its bailout. And it would appear to be going in the wrong direction, with expenses growing at 9% and sales flat.

  • avatar
    doctor olds

    What is wrong is the conclusion that GM is not generating income from operations. The reason for this is Automotive cost of sales includes non cash losses and the buyout of salary pensions that relieves the balance sheet of tens of billions of future liability. GM is that much stronger.

    The lazy journalist at Alpha’s flawed analysis and your spinning it into a “stealth bailout” is what is wrong. You make it appear as if the company is losing money on operations with this analysis, which is certainly not true.

    You put me to too much work. Going out of town!

    • 0 avatar

      Dr Olds,

      “Automotive cost of sales includes non cash losses and the buyout of salary pensions”

      Cost of sales doesn’t include any of these things. In accounting, it is the direct cost (raw materials, fasctory labour and other factory operating costs) of producing the goods you plan to sell to customers. It is all real dollars, and is the profit that needs to pay all the other overhead costs, r&d, etc.

    • 0 avatar
      doctor olds

      @ect- The facts remain: GM had $37B in liquidity at 2011 year end, and they increased that slightly to $37.2B at 2012 year end while generating $89.6B in cash, and their long term pension liability was reduced by $29 billion by the $2.2B salaried pension buyout. Their actual R&D spend went down slightly from $8.1B in 2011 to $7.4B in 2012, btw.

      The company, in fact, did make money last year on operations. They also could have spread out the goodwill impairment rather than taking it all in one year.

      The bottom line: GM is strong and getting stronger. Buffett knows that.

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