General Motors announced today that it recorded a net loss of $3.25 billion during the first quarter of 2008, but it looks worse than it is thanks to a $1.45 billion hit from its 49% stake in floundering GMAC. The two-month long American Axle strike also cost GM about $800 million, while further support of bankrupt supplier Delphi's restructuring took $731 million from the corporate coffers. These "headline numbers" don't look good, but GM's performance in the area of actually selling cars wasn't as bad as analysts expected, and the automaker's stock actually rose after these earnings were announced.GM continued to do well in the business of selling cars in regions like Europe, Asia and Latin America, but the North American market continued to underperform. In North America, GM lost $812 million on revenue from sales of $24.5 billion, compared to a loss of $208 million last year on $28.1 billion of revenue. Aside from selling fewer vehicles, GM also lost 100,000 units of production thanks to the American Axle strike, which helped its market share slip from 22.5% last year to 21.7% in Q1 2008. Clearly the news isn't as good as it was, say, for Ford, but GM is virtually the only automaker being affected by the American Axle strike, and has a number of labor- and supplier-related issues to sort out before it can begin building a steady stream of its most popular models in North America.
[Source: GM, Automotive News - sub. req'd]
PRESS RELEASE
GM Reports Preliminary First Quarter 2008 Financial Results
- First quarter revenue of $42.7 billion
- Positive adjusted automotive earnings before tax, with improvement of over $160 million
- Positive reported automotive earnings before tax, down by $118 million
- Adjusted net loss of $350 million, reported net loss of $3.3 billion
- Continued strong results in emerging markets
- Liquidity position of $23.9 billion
DETROIT – General Motors Corp. (NYSE: GM) today announced financial results for the first quarter of 2008, marked by improved adjusted automotive operating performance, rapid growth in emerging markets, continued cost performance in GM North America (GMNA) operations and liquidity of nearly $24 billion, despite the impact of the American Axle strike on North American operations and weakness in the U.S. auto industry.
"We continue to leverage our global product portfolio to take advantage of tremendous growth in key emerging markets, while at the same time taking the appropriate actions to deal with the challenging economic conditions in the U.S.," said GM Chairman and Chief Executive Officer, Rick Wagoner.
Reflecting several special items noted below, GM reported a net loss of $3.3 billion, or $5.74 per share in the first quarter of 2008, compared with a net loss from continuing operations of $42 million, or $.07 per diluted share, in the year-ago quarter.
Adjusted automotive earnings before taxes were $392 million, up $161 million despite the significant impact of the American Axle strike and weak U.S. auto industry (reported earnings declined $118 million). These positive results were driven by strong combined earnings before taxes of $1 billion in GM Latin America, Africa and Middle East (GMLAAM), GM Asia Pacific (GMAP) and GM Europe (GME), which more than offset a loss at GMNA.
Excluding special items, GM posted an adjusted net loss of $350 million, or $.62 per diluted share in the first quarter of 2008, reflecting losses at GMAC and tax expenses. These results compare to an adjusted net loss from continuing operations of $10 million, or $0.01 per diluted share in the first quarter of 2007.
The reported results for the first quarter of 2008 include unfavorable special items totaling $2.9 billion. The charges include $1.45 billion to record a non-cash partial impairment of our equity investment in GMAC. Based on current market pricing, GM concluded that the estimated fair value of the common and preferred equity interests it holds in GMAC were approximately $1.45 billion less than GM's carrying value.
GM also took a non-cash charge of $731 million to increase GM's liability for estimated net costs associated with GM's support of Delphi's bankruptcy and restructuring efforts. This charge primarily results from updated estimates reflecting uncertainty around the nature, value and timing of GM's recoveries. In addition, GM recorded $394 million in non-cash tax-related valuation allowances related to deferred tax assets in Europe, and $324 million in charges related to previously-announced restructuring actions in North America and Europe. Details on all of the special items are included in the "Highlights" section of this news release.
GM's total revenue for the first quarter of 2008 was $42.7 billion, down slightly from $43.4 billion in the year-ago quarter primarily due to lower North America automotive and financial services and insurance revenues. Automotive revenues outside of North America were up over 20 percent, with strong growth in China, Brazil, Russia and India.
As reported in the fourth quarter of 2007, and reflected in the remainder of this release, GM now reports its automotive operations and regional results on an earnings-before-tax basis, with taxes reported on a total corporate basis.
GM Automotive Operations
Adjusted profits from GM's global automotive operations improved, with first quarter 2008 earnings before tax of $392 million on an adjusted basis (reported earnings before tax of $68 million), compared to $231 million in the year-ago period (reported earnings before tax of $186 million).
GM sold 2.25 million vehicles in the first quarter of 2008, down less than one percent from 2.27 million units in the first quarter 2007, with a record 64 percent of sales outside of the United States. Unit sales outside GMNA were up 8 percent compared with the same quarter last year. Robust sales in the first quarter in GM's GMLAAM and GMAP regions, and improved sales in the GME region helped offset a 10 percent unit decline in GMNA.
GMNA
GMNA revenue for the first quarter 2008 was $24.5 billion, compared to $28.1 billion in the year-ago period. The decline in GMNA first quarter revenue was significantly impacted by the lost production due to the American Axle strike. Other factors include a softer U.S. market and planned actions to maintain lean inventories. With the industry shift toward more fuel-efficient vehicles, GM's most recently launched passenger cars and crossovers, including the Cadillac CTS, GMC Acadia, Buick Enclave and the all-new Chevrolet Malibu continue to perform well in the marketplace.
The decline in GMNA first quarter earnings was more than accounted for by the loss of 100,000 production units resulting from the American Axle strike, which had an estimated impact to earnings of $0.8 billion. Other factors included lower volumes resulting from a softer U.S. market and lower market share, as well as shifts in product mix. Partially offsetting the declines were favorable material and structural cost performance and commodity hedging gains and foreign exchange.
GME
GME Revenue was up 17 percent and adjusted earnings before tax improved by $137 million. GME's improved earnings for the first quarter were driven by improved material cost performance, commodity hedging gains and reduced warranty costs, which were partially offset by negative foreign exchange and unfavorable country mix. GME had record first-quarter sales volumes of 572,000 units.
GMLAAM
Adjusted earnings before tax in the GMLAAM region more than doubled in the first quarter of 2008, driven by continued strong market growth and gains in GM market share in the region. GMLAAM revenue was up over 33 percent and volumes were up 20 percent, setting new first-quarter records for both unit sales and revenue. In addition, Argentina, Egypt and North Africa each set new quarterly sales records.
GMAP
GMAP adjusted earnings before tax increased by 49 percent, driven by strong volume and improvements in material cost performance, which were partially offset by mix and pricing deterioration and increased structural costs incurred to support growth. Revenue and earnings before tax improved significantly due to the overall volume gains, although market share was down slightly primarily due to declines in China, Australia and Korea.
GMAC
On a standalone basis, GMAC Financial Services reported a net loss of $589 million for the first quarter 2008, primarily due to significant declines in the international mortgage operation of Residential Capital, LLC (ResCap). The company's global automotive and insurance businesses posted profits. GM reported an adjusted loss before taxes of $276 million for the quarter attributable to GMAC, as a result of its 49 percent equity interest and preferred dividends. While continued volatility in the capital and credit markets put pressure on first quarter results, GMAC continues to take actions to reduce risk, streamline its cost structure and preserve liquidity in an effort to protect franchise value.
Cash and Liquidity
Cash, marketable securities, and readily-available assets of the Voluntary Employees' Beneficiary Association (VEBA) trust totaled $23.9 billion on March 31, 2008, down from $24.7 billion on March 31, 2007. The change in liquidity reflects adjusted negative operating cash flow of $3.6 billion in the first quarter 2008. The decrease was driven largely by lower production in GMNA, including the impact of the American Axle strike. Including undrawn, committed U.S. credit facilities of approximately $7 billion, GM has access to more than $30 billion in liquidity.
Looking Forward
In light of the current state of the U.S. economy and automotive industry, GM has revised its 2008 U.S. total industry seasonally adjusted annual rate (SAAR) outlook to the mid to high 15 million unit range, down from the low 16 million unit range. As a result of the anticipated softer automotive industry, GM announced earlier this week that it will eliminate a shift of production at four assembly plants: Janesville, WI; Pontiac and Flint, MI and Oshawa, Ont.
"We remain focused on taking the actions necessary to assure GM's long-term success – product excellence, leadership in advanced propulsion technology, growth in emerging markets, and accelerating the restructuring of our U.S. business to achieve sustainable profitability," said Wagoner.
Results for the first quarter of 2008 are preliminary and may be revised prior to the filing of GM's first quarter report on Form 10-Q in May.
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Reader Comments (Page 1 of 2)
Paul P. @ Apr 30th 2008 10:38AM
Odd that GM is loosing money and Ford is making money. For the life of me I couldn't figure out what Ford's plan was, especially with the dull cars they've been putting out, but it seems to be working for them. GM, on the other hand, is making some awesome cars, but can't seem to profit from it. Weird how that works.
zamafir @ Apr 30th 2008 10:49AM
Well, ford doesn't have GMAC which will continue to drag GM into the red as long as the current economic 'it's not a recession cuz we haven't passed the six month period where the board meets and says "we've been in a recession"' ends.
Also, Ford, smartly, has been selling of marques which aren't a part of their core business, which is allowing them to focus on their core products and inject their numbers with large positive sales of said firms.
Randy @ Apr 30th 2008 1:11PM
Though Ford doesn't have GMAC they (because it's GM) they do have Ford Credit. No home mortgages from Ford Credit, they defer thous out to banks. Smart move.
How stupid is GM for being anti-diverse! Think about this for a moment. You make cars and trucks. Then you finance homes! Yeah it makes money for a while but when a recession (Now) hits, you're bleeding until the day the recession is over. By that time, the compounding effects of the poor diversification of the company have taken a stronghold and you're up for the highest bidder!
Tragedy @ Apr 30th 2008 11:49PM
LOSING, not "loosing". Jesus H Christ
Blake @ May 2nd 2008 12:02AM
@ Randy
"How stupid is GM for being anti-diverse! Think about this for a moment. You make cars and trucks. Then you finance homes!"
A automotive financing company that does home mortgages too? Doesn't that actually make them diverse? It's easy to complain about GMAC dragging them down now. But when the economy and housing market were booming, GMAC was a cash cow for GM. Hence, how they were able to make money by selling off such a large share.
SPG @ Apr 30th 2008 10:58AM
I've always been more of a Ford fan then a GM fan (Volvo and Saab are the cars I love though) but I've owned some GM's for years. Real GM's not Matrix's or the like.
I really like them.
I'd buy another big sloshy slow old fashioned GM again.
There's one in my driveway, it's not half bad.
XJ @ Apr 30th 2008 11:43AM
Are you John Neff?
compy386 @ Apr 30th 2008 11:02AM
Ford Credit does not do subprime loans, GMAC does.
Ford Credit does not do mortgages, GMAC does.
GM is really smart/lucky to have sold 51% of GMAC when it still had value.
psarhjinian @ Apr 30th 2008 11:18AM
A lot of this is due to GM, ahem, not stating losses in previous years due to anticipated profit that never happened. Accounting regulations didn't allow them to continue doing this; they had to disclose said losses now.
There's debate as to how good/bad this is :good in that it's a one-time thing, bad in that it means GM was camouflaging how bad things really have been for the past several quarters.
GMAC's position is painful, but it's important to note that GMAC's profits had been floating GM through the last decade. It's not like GMAC has been an albatross for years; they're probably the reason GM is still viable now, and yes, dumping large chunks of them prior to the subprime mortgage crisis was smart.
GM's operational issues are the problem here; they've been losing money in North America for years and it's only an issue now because they haven't been able to hide it any longer. Despite decent product (the Malibu, Cadillac, the GMT900s and Lambdas) they still have too many divisions and models, and they still have a lot of mediocre cars that just aren't moving, especially in the economy market. Ford isn't hurting as badly because Ford seems to understand that they have to have a balanced product mix (Ford is, on the whole, better than average; GM has serious weaknesses) and that it's better to be small and profitable than huge and money-losing. GM doesn't seem to "get" that it doesn't have 50% of the market anymore, and can't waste resources on flashy crap and needless rebadges.
Disgruntled Goat @ Apr 30th 2008 11:21AM
RE: "good in that it's a one-time thing"
It's _ALWAYS_ a one time thing. There was a one time thing last Q and there'll be a one time thing next Q. And the Q after that. And the Q after that. Etc, etc, etc...
Disgruntled Goat @ Apr 30th 2008 11:18AM
Good thing GM gave the execs their high $$$ salaries back last week. Pay for performance?? Ummm, yeah....
http://www.autoblog.com/2008/04/26/gm-increases-exec-salaries-to-normal-levels/
Derek @ Apr 30th 2008 12:38PM
A) people inside the company almost surely knew these results before upping the execs salaries.
B) 1 million = 0.001 Billion. Even if their pay had gone up $50 million, it would be a $3.2B loss without said raises. Any difference?
psarhjinian @ Apr 30th 2008 1:00PM
I always find this amusing. Toyota's executives don't make anything even remotely close to what GM (or Ford, or Chrysler) do, yet the reason oft cited for such excessive compensation is the need to attract talent. Clearly, Toyota doesn't seem to need to pay huge dollars for talent.
Perhaps we ought to look at American corporate culture a little bit: from the assembly line up (or is that from boardroom down?), it's all about "me" Now, as an old leftie, I find it somewhat repugnant to subordinate to the corporatation as the Japanese do, but perhaps a little bit more civic involvement in corporate affairs would encourage not just better fiscal results, but perhaps better corporate behaviour?
idunno55 @ Apr 30th 2008 11:22AM
It should be noted that profit on vehicle manufacture is calculated when the car is produced and rolls off the line, and not when it's actually sold (this is industry standard). By this merit, the American Axle strike has affected the bottom line quite a bit. GMAC as others have mentioned also has a big part played in this. GM has sold a hell of a lot more cars this past quarter everywhere aside from North America than they did this quarter last year. In North America, it's largely the truck sales affecting this, as car sales have been way up, for instance the CTS selling 55% more than Q1, 2007. So it's not really as bad as it looks, and I'm glad that the stock market reacted to it properly.
OMER @ Apr 30th 2008 11:58AM
Gm has great products on paper but i just want to make 2 points. When you purchase a new GM car and add all the options its not worth the price, there are so many better cars out there for that price.
Next is quality!!! when you drive any GM model at 60k miles it feels like its falling apart, when you drive a german car that has 100k it feels better !!
oohh and lets not forget in 1991 bmw 850ci had luxury that Gm is putting on their 2008 models lol talk about being behind lol..
That One Person @ Apr 30th 2008 5:40PM
I sort of agree with the whole not worth the price point...on certain vehicles (think Cobalt).
Next, things have changed since 1991. Heck, there are options that were on those old Bimmers that even Japanese companies are finally putting into their cars. Here is another example. Toyota announced it was going to put MPG gauges in their vehicles as standard options...this is something Chrysler has been doing for years. GM cars don't fall apart after 60k miles. My 94 Regal has 140k miles on it and still runs like a champ. It has a few squeaks here and there...but what do you expect from a 14 year old vehicle?
And German vehicles have NEVER been the shining beacon of quality and reliability. Even German car owners know this.
LOL at your lame comment.
montoym @ Apr 30th 2008 7:16PM
Funny that the same BMW 850Ci cost $100K in 1991. Not today's dollars, in 1991 money!
The same car today would cost $180-200K I'd guess. Being that it's similar to the current M-B CL65(big, sporty V-12 coupe GT) which is about that cost currently.
There's an apples to oranges comparison if I've ever seen one. GM doesn't even build anything with a V-12 much less a competitor in the V-12 Sport Coupe/GT category.
I'd surely hope that a $100K BMW has more luxury than a mainstream GM car. Otherwise, that wouldn't be a mark on GM, instead, it would be a concern for BMW I'd have to say.
Tagg @ Apr 30th 2008 12:11PM
Does anyone know if GM has paid the VEBA fund for it's workers healthcare? I can't remember when its due but its a one time payment between $30 to $35 billion and if they haven't paid it this could get worse.
If they haven't it has to be due within the next quarter or so.
C.W. @ Apr 30th 2008 2:50PM
thats actually a good point, because Ford did pay a significant portion towards their VEBA and STILL posted the profit.
I do not believe GM has yet.
Egon @ Apr 30th 2008 12:13PM
I'll be the first to admit that I don't appreciate the intricacies of major-league accounting, but I'm often puzzled and amused by big-time quarterly losses quickly followed by "...but it looks worse than it is" spin.
I might have been daydreaming in math class, but I'm fairly certain a loss of three-thousand two-hundred and fifty MILLION dollars looks pretty "worse". Save the popping champagne corks for when GM makes some money instead losing less than expected.