Ford Motor Company's third-quarter earnings report released earlier today basically said, "Times are bad, but we'll be aight." General Motors' just-released earnings report for the same time period says "Holy effin' hell, we're running out of things to cut, please help us!" We'll try and it keep it simple, but the main number is $2.5 billion, as in $2.5 billion lost during the Q3 '08. That compares with a $42.5 billion loss this time last year, but the bulk of that was attributable to a one-time charge against the books. Unfortunately, not only was GM North America revenue down, but the automaker claims the credit crisis has made its way around the world and contributed to losses in GM Europe and GM Asia Pacific, as well as its own financing arm, GMAC.

Here's the bigger story: General Motors burned through $6.9 billion of its cash reserves during Q3 '08, which reduces its bank account from $21 billion at the end of Q2 to $16.2 billion today. That's barely enough for such a big automaker to survive the coming winter, so In response, GM has announced to create an additional $5 billion of liquidity by the end of 2009. Below are the big changes we can expect.

  • Retiming select vehicle programs in North America and Europe by three to 12 months, i.e. lengthening product lifecycles
  • Deferring capacity expansion projects
  • Lower sales promotion spending, i.e. less advertising
  • Less support of dealer network activities and channel consolidations
  • Scaling back production
  • Curtailing discretionary spending (travel, consulting, over-time, etc.)
  • Increase reduction in force from 20 to 30%
Three other things deserve mention. The first is that rumors of the Volt being delayed are untrue. In fact, GM says that spending on the Volt and other fuel economy initiatives will be increased. The second is that GM acknowledged it was considering acquiring Chrysler LLC (though it wasn't named directly), but the merger talks have stopped for the time being. And finally, the main message GM wants to get out via its earnings report is that despite cutting spending even more, it considers government aid essential for its survival. So, ball in your court, Obama.

Follow the jump for a pair of lengthy press releases from GM.

[Source: General Motors]


PRESS RELEASES

GM Announces $5 Billion In Additional Liquidity Enhancement Initiatives
  • Operating actions announced July 15 remain on track, targeted at $10 billion in cash improvements through 2009
  • Asset sales of $2-4 billion in process, including Hummer, ACDelco and Strasbourg facilities
  • Additional actions targeted at further improving liquidity by $5 billion by end of 2009
  • 2009 capital spending reduced by $2.5 billion; key product and technology programs on track
  • Additional GMNA structural cost reductions of $1.5 billion
  • Further working capital improvements of $500 million
  • Further salaried employment cost reductions of $500 million
  • Engaging the U.S. government to aid the domestic auto industry
DETROIT – General Motors Corp. (NYSE: GM) today announced it is taking further actions to improve liquidity and reduce structural cost in response to deteriorating global economic conditions, tight credit market conditions and a rapid retraction of sales in the auto industry.

"Volatility in the world's financial markets, tightening of consumer and business credit and historically-low consumer confidence has created a very challenging environment ," said Rick Wagoner, GM chairman and chief executive officer. "Given the current lack of credit availability we must take further difficult 'self-help' actions ."

Over the past several years, GM has been taking major actions to restructure its business and position it for long-term growth, making dramatic reductions in structural cost, revitalizing its product portfolio with award-winning vehicles, growing aggressively in emerging markets around the world and making demonstrable strides in advanced technology leadership (link to release).

As part of its ongoing restructuring, on July 15, 2008 GM outlined a number of initiatives aimed at improving liquidity by an estimated $15 billion through 2009 (link to release). Those initiatives included internal operating actions within the company's control that are estimated at $10 billion, asset sales estimated at $2-4 billion and capital market activities targeted at $2-3 billion.

To date, the $10 billion in internal operating actions have either been completed or are on track for full execution by the end of 2009.

GM's assets currently being assessed for potential sale include the Hummer vehicle business and brand and its ACDelco all-makes aftermarket parts business, which has distribution channels in more than 100 countries. GM is also evaluating strategic options for its technical and manufacturing center in Strasbourg, France. GM is also analyzing other potential asset sales.

Despite the seizing up of the credit markets, GM c ompleted some capital market transactions (link to release) in September to improve the company's liquidity by $500 million by year-end 2009. While GM has unencumbered assets of more than $20 billion that it could potentially use as collateral for a secured debt offering, the U.S. credit markets remain inaccessible, and the contagion effect on other financial markets around the world provides limited alternatives. Accordingly, t he timing of the $2-3 billion of capital market financing GM initially targeted remains uncertain.

In light of the further deterioration in the U.S. auto market and continued turmoil in the global financial markets, GM is making downward revisions to its liquidity planning assumptions. For planning purposes, GM is assuming U.S. light industry sales volumes of 11.7 million units in 2009, and 12.7 million units in 2010. GM is also revising its average oil price estimates to range between $60-80 per barrel in 2009, and $100-$120 per barrel in 2010.

In addition to its previously announced liquidity and capacity actions, GM is taking further actions to improve liquidity by an incremental $5 billion by the end of 2009.

GM is reducing its capital spending for the calendar year 2009 from approximately $7.2 billion to $4.8 billion. The reductions will be achieved by retiming select vehicle programs in North America and Europe by three to 12 months, and deferring capacity expansion projects. Every automaker is having to adjust portfolios and spending plans to some degree, due to the rapidly changing business conditions and increasing challenging regulatory requirements. Lengthening product lifecycles is a common response to these pressures.

Although the timing of several vehicle programs will be revised, key product and technology programs remain on track. GM has a robust pipeline of competitive new vehicles over the next two years. In GM's largest markets, U.S., China and Europe, 22 new vehicles will be launched in 2009, and 19 in 2010. In the U.S. alone, GM will launch 15 new vehicles through year-end 2010, 14 of which will be fuel-efficient cars or crossovers, including the Cadillac CTS wagon and SRX crossover, Chevrolet Camaro Coupe and Equinox crossover in 2009, and Saab 9-4x crossover, Chevrolet Cruze small car in 2010. Spending levels for the extended range electric Chevrolet Volt and other fuel-economy improvement initiatives to meet increasingly aggressive global fuel economy standards have been increased.

GM is also taking steps to reduce structural cost by an additional $1.5 billion. Actions being employed to achieve the savings include further reductions in sales promotion spending, further reductions in support of dealer network activities and channel consolidations, and further revisions to production scheduling reflective of depressed industry conditions. In response to declining demand, GM will re-rate operations at a number of operations in North America to scale back production, beginning in the first quarter of 2009.

GM also expects to make further reductions in engineering expense due to the aforementioned delays in capital spending. In addition, various types of discretionary spending, such as travel, use of consulting resources, and non-scheduled overtime for hourly and salaried employees, will also be restricted.

A number of working capital improvements, totaling approximately $500 million, are also being taken, including additional inventory reductions, with an emphasis on further cuts in components, buffer stocks and finished goods.

Measures are also being taken to further reduce salaried employment costs in the U.S. and Canada. The cost reduction target has been increased to approximately 30 percent, up from approximately 20 percent as announced on July 15. The reductions will be achieved with further contract and salaried headcount reductions by the recent over-achievement of the salaried window retirement goal, mutual separation programs, and if necessary, involuntary separations. Employment cash cost savings will also be achieved in Western Europe in 2009 as part of its necessary, broad-based labor cost reduction initiatives.

Salaried employees will not receive enhanced variable pay (incentive compensation) in 2009 for the 2008 performance period. GM had previously announced there would be no discretionary cash bonuses for 2008 for the company's executive employees.

In addition, GM suspended the company match for the stock savings (401k) plan in the U.S., effective November 1, 2008, and matching contributions for tuition assistance and other reimbursement programs are being suspended effective January 1, 2009.

Even if GM implements the planned operating actions that are substantially within its control, GM's estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business. Looking into the first two quarters of 2009, even with its planned actions, the company's estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination of the foregoing. The success of GM's plans necessarily depends on other factors, including global economic conditions and the level of automotive sales, particularly in the United States and Western Europe.

Further detail on the additional liquidity actions and GM's current liquidity position and outlook will be disclosed in a Form 8-K filing with the Securities and Exchange (SEC) later today.

GM has taken a host of aggressive "self help" actions to improve its business, but additional support from the U.S. government to aid the auto industry during this industry downturn is essential. The company has engaged in discussions with various U.S. federal government agencies and Congressional leaders about the important role that the domestic automotive industry plays in the U.S. economy, and the need for immediate government funding support given the economic and credit crisis and its impact on the industry, including consumers, dealers, suppliers and manufacturers. Many in the government have acknowledged the important role of the industry in the national economy and the discussions are ongoing; and at this point, their outcome cannot be predicated with certainty.

"These tough actions, though very difficult to make, demonstrate our commitment and determination to weather this economic downturn and emerge a stronger and more competitive company," said Wagoner. "We remain focused on retaining our focus on product excellence and our commitment to advanced propulsion technology leadership and returning the business to profitability despite the current market conditions."

Finally, GM has recently explored the possibility of a strategic acquisition that it believed would generate significant cost reduction synergies and substantially strengthen GM's financial position in the medium and long term, while being neutral or modestly positive to cash flow even in the near term. While the acquisition could potentially have provided significant benefits, the company has concluded that it is more important at the present time to focus on its immediate liquidity challenges and, accordingly, considerations of such a transaction as a near-term priority have been set aside.

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GM Reports Third Quarter Financial Results

  • Unprecedented economic and credit market turmoil dramatically impacts auto industry and GM results
  • Market volatility results in $1.5 billion in non-cash charges for commodity and currency hedging
  • Company anticipates soft U.S. market for remainder of 2008 and into 2009
  • Emerging markets beginning to show impact of credit crisis

DETROIT –General Motors (NYSE: GM) today announced its financial results for the third quarter of 2008, reflecting rapidly deteriorating market conditions in the U.S., slowdowns in other mature markets around the world, and continued losses at GMAC Financial Services (GMAC).

During the third quarter the turmoil in the global credit markets resulted in the worst financial crisis in more than 70 years. The upheaval has had a dramatic impact on the auto business in particular, especially in the U.S. and Western Europe.

Tight credit, rising unemployment, declining income, falling stock markets, and continuing deterioration in the housing market in the U.S., resulted in an abrupt halt in consumer spending, with most consumers exiting the vehicle market. Many of those still intending to purchase vehicles were denied financing, or found the cost of financing prohibitive.

"The third quarter was especially challenging for the auto industry. Consumer spending, which represents close to 70 percent of the U.S. economy, fell dramatically, and the abrupt closure of credit markets created a downward spiral in vehicle sales," said Rick Wagoner, Chairman and Chief Executive Officer. "The U.S. government's actions to help stabilize the credit markets and eventually ease the credit crunch are an essential first step to the economy's and the auto industry's recovery, but further strong action is required."

GM reported a net loss of $2.5 billion or $4.45 per share for the third quarter, including special items. That compares with a net loss from continuing operations of $42.5 billion or $75.12 per share in the third quarter of 2007, which included a non-cash charge of $38.3 billion to establish a valuation allowance against some of the company's net deferred tax assets.

On an adjusted basis, GM posted a net loss of $4.2 billion or $7.35 per share, compared with a net loss from continuing operations of $1.6 billion or $2.86 per share in the same period last year.

Revenue for the third quarter was $37.9 billion, down from $43.7 billion in the year-ago quarter, reflecting dramatic sales declines across the industry driven by unstable market conditions, instability in the credit markets and dramatic retraction in consumer demand, especially in North America and Europe.

GM recorded net favorable charges of $1.7 billion for special items in the third quarter. Included in the charges was a curtailment gain of $4.9 billion resulting from the UAW Settlement Agreement becoming effective. The curtailment represents the accelerated recognition of net prior service credits, largely relating to the 2005 GM UAW healthcare agreement, scheduled for amortization after January 1, 2010.

The curtailment was recorded because GM's UAW retiree health plan will not exist after January 1, 2010, and therefore no further basis for deferring unamortized prior service credits exists beyond that date. The $4.9 billion curtailment gain was partially offset by a non-cash $1.7 billion settlement charge related to the elimination of post-65 salaried retiree healthcare coverage, including the cost of increased pension benefits that were announced in July as part of GM's operating actions to improve liquidity as well as the recognition of accumulated deferred losses related to the healthcare plan.

In addition, GM reported charges of $652 million relating to its commitments as part of Delphi's bankruptcy proceedings, $251 million for impairment of investments in GMAC, and $641 million in restructuring-related and other charges. Details on these and all other special items are in the financial highlights section of this release.

GM Automotive Operations

GM reports its automotive operations and regional results on an earnings-before-tax basis, with taxes reported on a total corporate basis.

GM recorded an adjusted automotive loss of $2.8 billion ($947 million reported loss) in the third quarter 2008. The loss compares with adjusted automotive earnings from continuing operations of $98 million in the third quarter of 2007 (reported net loss of $1.6 billion).

The results reflect losses in GM North America (GMNA) driven largely by the U.S. industry volume decline of nearly 20 percent, and shifts in product mix. In addition, Europe saw rapid auto market contraction, leading to sharply lower GM Europe (GME) sales volume in the third quarter. GM Asia Pacific (GMAP) results were down due to commodity hedging charges and moderating demand in key markets including China, Australia and India. These losses were partially offset by very strong results in the GM Latin America, Africa and Middle East (GMLAAM) region.

GM's automotive results in the third quarter include $1.5 billion of expenses related to mark-to-market changes in the value of GM's commodity and foreign exchange hedging contracts, due almost entirely to falling commodity prices.

GM sold 2.1 million vehicles worldwide in the third quarter, down 11 percent year over year. Sales in GMNA were down 19 percent compared to third quarter 2007. GM global market share was 13 percent, down 0.7 percentage points compared with the third quarter of 2007, due largely to weakness in North America and Western Europe.

GMNA

GMNA revenue and earnings in the third quarter reflect dramatic industry deterioration and a sharp fall in consumer spending driven by the weak U.S. economy and a very harsh credit environment. Earnings were impacted by lower volumes, rapid shifts among U.S. consumers away from trucks and SUVs toward smaller cars, and unfavorable mark-to-market adjustments on commodity hedging.

GME

GME revenue was down 15 percent in the third quarter amid industry-wide volume declines ranging from 10 to 35 percent in certain major markets including the U.K., Spain and Italy. Overall GME sales volume was down 12.3 percent year over year, while up 10 percent in Eastern Europe. Earnings were largely impacted by the lower volumes, and unfavorable mix and negative pricing. In addition, unfavorable foreign exchange relating to the weakening of the British pound and the mark-to-market of commodity hedges negatively impacted earnings. Results were partially offset by favorable structural cost performance.

GMAP

Results in GMAP were impacted primarily by unfavorable mix and negative pricing. In addition, GMAP results were impacted by unfavorable hedging, which was largely offset by the favorable foreign exchange impact of exports.

Industry sales for the region were down by 134,000 units or 2.7 percent in the third quarter. Despite the slowdown, GM reported a 2.6 percent increase in sales volume, and modest gain in market share. Markets in the GMAP region are expected to remain soft through the fourth quarter, with further slow downs anticipated in Australia, China, South Korea and India as the contagion of the faltering U.S. economy and tightening credit conditions expand to other regions around the world.

GMLAAM

GMLAAM saw double-digit revenue growth, up 15 percent, and earnings, up 37 percent, in the third quarter, fueled by strong demand for Chevrolet and Cadillac products. GMLAAM sales volume was up more than 3 percent compared to the same period last year. Sales were especially strong in key South America markets, including Brazil, Chile, Ecuador and Peru, each setting all-time GM quarterly sales records. The region is on track for another year of record sales, although the effects of the global economic slowdown on credit availability and consumer behavior are likely to result in some moderation of demand in the fourth quarter.

GMAC

On a standalone basis, GMAC reported a net loss of $2.5 billion for the third quarter 2008, down $900 million from the year-ago quarter. GM reported an adjusted loss of $1.2 billion for the quarter attributable to GMAC, as a result of its 49 percent equity interest.

GMAC's automotive finance operation experienced pressure from lower used vehicle prices and weaker consumer and dealer credit performance. GMAC's ResCap operations reported further losses as a result of adverse market conditions, which drove high credit-related provisions and weak revenue. GMAC's Insurance business remained profitable.

Cash and Liquidity

Cash, marketable securities, and readily-available assets of the Voluntary Employees' Beneficiary Association (VEBA) trust totaled $16.2 billion on September 30, 2008, down from $21.0 billion on June 30, 2008.

The change in liquidity reflects negative adjusted operating cash flow of $6.9 billion in the third quarter 2008, driven by the industry-wide slowdown in vehicle demand and compounding credit crisis, especially in North America and Europe. During the quarter, GM drew the remaining $3.5 billion of its secured revolving credit facility and made $1.2 billion in payments to Delphi as required by agreements between the companies as part of Delphi's bankruptcy proceedings.

GM expects adjusted operating cash flow in the fourth quarter to be much improved versus the third quarter, and more consistent with the first half of the year. Improvements in fourth quarter cash flow are largely driven by anticipated improvements in working capital in North America relating to sales allowances, and lower fourth quarter finished vehicle inventory in Europe.

Improving its liquidity position remains a top priority for the company. In response to deteriorating market conditions, GM announced today that in addition to the $15 billion in liquidity initiatives it outlined in July 2008, it has identified $5 billion of incremental liquidity actions. Cumulatively, GM has announced actions aimed at improving liquidity by $20 billion through 2009. To date, $10 billion in internal operating actions have either already been completed or are on track for full execution by the end of 2009.

Even if GM implements the planned operating actions that are substantially within its control, GM's estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business. Looking into the first two quarters of 2009, even with its planned actions, the company's estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination of the foregoing. The success of GM's plans necessarily depends on other factors, including global economic conditions and the level of automotive sales, particularly in the United States and Western Europe.

Further detail on the additional liquidity actions and GM's current liquidity position and outlook will be disclosed in a Form 8-K filing with the Securities and Exchange (SEC) later today.