GM posts $6B loss in Q1, burns through $10B
General Motors reported its first quarter earnings today, and the beleaguered U.S. automaker posted a $6 billion net loss compared to a net loss of $3.3 billion one year ago. At the same time, GM burned through $10.2 billion in cash during Q1, though still has $11.6 billion in cash reserves on hand thanks in large part to the $13.4 billion in loans that it's accepted from the U.S. government so far. Revenue was down in each of GM's regional operations, including North America, Europe, China and Latin America. Partly to blame is the global recession, though the dark cloud hanging over GM is surely responsible for scaring away buyers around the globe who aren't sure if the automaker will be around much longer. Regardless, GM is still plugging away at its revised Viability Plan, which is due in the U.S. Auto Task Force's hands by June 1st. Part of that plan is reducing the General's portfolio to just four core brands – Chevy, Cadillac, Buick and GMC – and adding Pontiac to the long list of brands it will jettison as soon as possible.[Source: General Motors | Photo by Scott Olson/Getty ]
PRESS RELEASE
GM Reports First Quarter Financial Results
* First quarter reported net loss of $6.0 billion
* Results reflect continuation of global economic downturn and lower industry-wide sales volume
* Losses partially offset by strong structural cost reduction due to aggressive restructuring efforts
DETROIT – General Motors (NYSE: GM) today announced its financial results for the first quarter of 2009, which predominantly reflect the effects of continued global economic pressures and low auto industry volumes worldwide. Industry sales volume was down 21 percent globally in the first quarter versus the year-ago period, leading to significantly reduced volume and revenue for GM.
"Our first quarter results underscore the importance of executing GM's revised Viability Plan, which goes further and faster to lower our break-even point," said Fritz Henderson, president and chief executive officer. " Our Plan is designed to fix the fundamentals of our business by restructuring and deleveraging our balance sheet, enhancing our revenue capability and dramatically reducing costs. It's focused on taking care of customers every single day, winning with four core brands, and investing in new products and technology, while at the same time accelerating actions to lower our cost structure to return GM to profitability quickly ."
GM posted a reported net loss of $6.0 billion, including special items, or $9.78 per share in the first quarter of 2009. This compares with a reported net loss of $3.3 billion, or $5.80 per share, in the year-ago quarter. Excluding special items, the company reported an adjusted net loss of $5.9 billion, or $9.66 per share, in the first quarter of 2009 compared to an adjusted net loss of $381 million, or $0.67 per share, in the first quarter of 2008.
The reported results for the first quarter of 2009 include special items and charges netting to a loss of $73 million. The special items include GM's $906 million gain on debt extinguishment and $385 million related to GM's portion of GMAC Financial Services' (GMAC) gain associated with the accounting on its debt extinguishment. These items were offset by charges of $116 million for restructuring, a charge of $822 million related to Saab filing for reorganization, and a charge of $291 million in GM North America (GMNA) related to asset impairments. Charges of $135 million were recorded for advances made under the Delphi Advance Agreement. A reserve was recorded to write-off the receivable as it is deemed uncollectable.
GM's revenue for the first quarter of 2009 was $22.4 billion, down 47 percent from $42.4 billion in the year-ago quarter . The drop in revenue was primarily due to GM's production volume decline of 903,000 units, or approximately 40 percent, on a global basis year-over-year.
Beginning in the first quarter of 2009 and reflected in this release, GM will report its automotive operations and regional results on an earnings-before-interest-and-taxes (EBIT) basis, with interest expense and income tax reported in the corporate sector.
GM Automotive Operations
GM recorded an adjusted automotive EBIT loss of $3.9 billion ($5.2 billion reported EBIT loss) in the first quarter 2009. The loss compares with adjusted automotive EBIT income of $808 million in the first quarter of 2008 (reported EBIT income of $484 million).
GM's automotive results in the first quarter of 2009 were driven by a revenue decline in all regions, due in part to a depressed global industry. In addition, GM's results were impacted by unfavorable foreign currency exchange and mark-to-market commodity hedging versus the year-ago quarter. However, these losses were partially offset by a significant structural cost improvement of $3.1 billion when compared to the first quarter of 2008.
Demonstrating its commitment to product and technology excellence, GM launched several new vehicles in the first quarter, including the fuel-efficient Chevrolet Cruze in China. In North America, GM began production of the reinvented Chevrolet Camaro, which offers 29 miles-per-gallon fuel economy on the highway. The company also launched the Chevrolet Captiva Sport with its new 2.4L engine in Brazil, and introduced the Cadillac CTS-V to the Middle East. The 2009 European Car of the Year, the Opel/Vauxhall Insignia, continued to ramp-up production
GMNA revenue for the first quarter 2009 was $12.3 billion, down 50 percent compared to $24.5 billion in the year-ago period, mainly attributable to the impact of the U.S. recession on consumer spending. Earnings were affected by substantially lower production volume, down 58 percent year-over-year, due to the depressed industry, lower market share and adjustments to U.S. dealer inventory. GMNA managed its business in-line with lower industry demand by reducing U.S. dealer inventories by 105,000 units within the first quarter of 2009, from 872,000 units down to 767,000 units. GMNA's losses were partially offset by a reduction in the accrual for residual support programs for leased vehicles, primarily due to the improvement in residual values. In addition, GMNA significantly reduced engineering and manufacturing cost in the first quarter.
GME
GM Europe (GME) sales volume was up in Germany, as were industry sales, which were aided by aggressive government stimulus for the automotive sector. However, due to sales declines in other countries, GME experienced a 46 percent decline in production volume versus the year-ago quarter, which largely impacted regional earnings. In addition, GME experienced unfavorable foreign currency exchange, driven mainly by the weakening of the British Pound, and unfavorable mark-to-market commodity hedging. Results were partially offset by favorable mix and pricing, due in part to the success of the Opel/Vauxhall Insignia, and improved structural cost performance across the region.
GMAP
GM sales in China were up 17 percent, driven by strong SAIC-GM-Wuling performance and aggressive government stimulus. This helped fuel overall regional sales and market share increases. However, sales decreased in most countries across the region excluding China, driving down production volumes, which impacted GMAP revenue. In addition, GM Daewoo revenue dropped as export volumes declined significantly across its major export markets.
GMLAAM
GM Latin America, Africa and Middle East (GMLAAM) experienced sales increases in Ecuador and Peru in the first quarter, where it set new sales records. At the same time, GMLAAM saw market share increases in Colombia, Ecuador, Chile, Peru, Venezuela, Egypt, Kenya and North Africa. However, consistent with the industry's downward trend in the region , GMLAAM production volume dropped 24 percent versus the year-ago quarter, which impacted revenue. The region also experienced unfavorable foreign currency exchange primarily related to the depreciation of the Brazilian Real. In addition, special charges related to restructuring were incurred in several countries.
GMAC
On a standalone basis, GMAC reported a net loss of $675 million for the first quarter 2009, down $86 million from the year-ago quarter. GM realized a reported loss of $500 million for the quarter as a result of its equity interest in GMAC. Excluding the impact of the $385 million gain related to GM's portion of GMAC's gain associated with the accounting on its debt extinguishment, GM realized an adjusted net loss of $885 million.
GMAC's results were primarily attributable to continued pressure in mortgage operations, weaker credit performance on both auto and mortgage assets, mark-to-market adjustments, and an original issue discount related to its fourth quarter debt exchange. The losses were partially offset by profitable performance in its insurance business and gains on debt extinguishment transactions.
Cash and Liquidity
Cash and marketable securities totaled $11.6 billion on March 31, 2009, down from $14.2 billion on December 31, 2008.
The change in liquidity reflects negative adjusted operating cash flow of $10.2 billion in the first quarter of 2009, which was partially offset by U.S. TARP funding. Further detail on GM's current liquidity position and outlook will be disclosed in a Form 10-Q filing with the Securities and Exchange in the coming days.
Reinventing GM
On April 27, 2009, GM announced its revised Viability Plan, which is expected to result in sustainable cash flow and profitability, as well as a stronger balance sheet. The Plan includes faster and deeper acceleration of operational actions, encompassing further rationalization of its U.S. brands and nameplates, dealer consolidation, manufacturing capacity, and hourly employee and labor-cost reductions. GM also expects to implement additional salaried employee and executive reductions. These actions are designed to enable the company to dramatically reduce its U.S. breakeven volume, enabling GM to be profitable at below-trend industry sales volumes.
In addition, GM announced a number of initiatives to restructure and deleverage its balance sheet as an important part of the revised Viability Plan, including an exchange offer to its bondholders aimed at reducing its unsecured debt by at least $24 billion, conditioned upon exchanging at least half of its VEBA obligations (about $10 billion) to GM common stock and the conversion of at least half of GM's U.S. government debt to GM common stock. GM has not reached agreement with the UAW on the VEBA trust or with the U.S. Treasury on these conditions yet.
"This is a defining moment in the history of General Motors, and we are committed to our Plan, which we believe will lead to a stable and sustainable operating structure with a strong balance sheet," said Henderson. "Our goal is to fix this business once and for all to position ourselves to win in the long-term. That will be achieved by putting the customer first in all we do, focusing on fewer, stronger brands and developing great products that lead in design, technology, quality and fuel efficiency."
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Reader Comments (Page 1 of 2)
Taglane 12:37PM (5/07/2009)
Oh no. Here comes Sea Urchin...
Reply
why not the LS2LS7? 12:39PM (5/07/2009)
Toyota's drop off being larger than GM's kind of defies the argument that people are being scared off by GM's financial condition.
Reply
zamafir 12:53PM (5/07/2009)
Agreed, It's obviously not that, still, toyota has more cash, and they're not publicly funded, and one could reasonably argue better positioned to adapt and make a turn around. I'm just curious how GM can really pull out of this.
Bloke 1:03PM (5/07/2009)
Zamafir - both GM and Toyota are public companies.
9600baud 1:11PM (5/07/2009)
Anyone got a spare fork to give GM?
mike 1:19PM (5/07/2009)
Publicly traded and publicly funded are not the same things. Toyota has not taken bailout (public) money.
BoxerFanatic 1:20PM (5/07/2009)
Bloke,
After all the lecturing you have given me, and others, about the nuances of business dealings in the auto industry, it is ridiculous that you can't make that distinction.
Publicly traded stocks is MUCH different than government-owned or controlled companies.
It is determined by whether "public" means freely available to free people, or whether it means held in a false public trust by the government, under the government's control.
The USSR always referred to the "people's" this or that. That did not mean that the people on the ground actually had any choice or control whatsoever.
Vocabulary can be co-opted.
zamafir 1:20PM (5/07/2009)
@Bloke So the Japanese government covers any shortfalls they have? Would it be too much trouble to link us to an article about these transactions, I'd love to learn more about it.
why not the LS2LS7? 1:50PM (5/07/2009)
Toyota has applied for assistance from the Japanese government.
http://www.autoblog.com/2009/03/04/honda-may-follow-toyotas-lead-ask-japanese-govt-for-aid/
The selective memory on here is weird.
Bloke 1:50PM (5/07/2009)
If a company is a public (or publicly traded) company, its shares are listed on the stock exchange and the company's capital is therefore comprised of public funds.
A publically funded company is one which is nationalised. While GM has received a governmental bailout which will in turn see the US government owning a portion of the company, it is not formally a nationalised company.
zamafir 2:03PM (5/07/2009)
@why not the LS2LS7? thanks for the reminder. I'm just worrying this hole we're helping GM dig is getting deeper and deeper. I’m just curious how something so vast, hemorrhaging so much, can ever be reigned in?
Bloke 2:27PM (5/07/2009)
And BoxerFanatic, if you feel like you're being lectured, take a long, hard look in a mirror. Are you really that intimidated?
why not the LS2LS7? 4:25PM (5/07/2009)
zamafir:
For the most part I agree with you. I'm not sure I see the path from where GM is to profitability. This is of course unlike Toyota where it's quite likely they'll recover quickly once they stop making 7 SUVs (not counting Lexus!) and the economy bounces back a bit.
Jake 12:42PM (5/07/2009)
Why should my crooked politicians have all the fun wasting tax-payer money? I am glad that they let GM and Chrysler have some of the fun too.
Ha ha, weeeeem my country is broke.
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DayShifter 12:54PM (5/07/2009)
You are so late!! You're country has been broke for a while.....
DayShifter 12:47PM (5/07/2009)
Before the comments start.... spare us the apples to oranges comparisons with Ford.
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zamafir 12:56PM (5/07/2009)
Agreed, ford hired someone with a proven track record to turn their company around, GM went with their gut. Ford has hybrids which out do the competition (hybrid or not), GM's match often what non hybrid cars muster. Ford began retooling their plants for small cars before the implosion of the market, GM's still working on a viability plan.
Ford is running their company like a business. GM is not. Apples to Oranges.
DayShifter 1:11PM (5/07/2009)
No, not really, they started retooling around the same time, they started major cuts to people and plants before GM, they were able to sell off brands and controlling interests before GM, they have different deals with creditors and the UAW then GM, they are not the same size as GM, they had different cash on hand.....etc.
Don't start the "we love Ford now" and how well run company they are BS....
It's funny how often I hear the same people who dogged Ford but now love them just because they didn't take any bailout money..... Please!!!
zamafir 1:27PM (5/07/2009)
My admiration for ford has nothing to do with the bail out. I'm stoked the fusion gets better mileage in hybrid form than my hybrid camry; I'm stoked the fiesta's coming over bringing Americans a real fun car under 15k; I'm stoked they were intelligent and deliberately sold companies like Aston when they were worth the most. In short, 10 years from now when you pick up a basic business textbook, Ford will be the textbook example of an American corporation picking themselves up by their boot straps and making a lot of bright decisions. GM wont. It has nothing to do with bail out and everything to do with the decisions they made, the explicit examples you gave, which have put them where they are right now.
I'm not sure why it's so hard for people to understand it's not bad to give credit where credit is do. You act as though GM had no options to pursue the avenues Ford has gone down the last few years, truth is they could have. Your speaking like they've just been mugged by the economy and there's nothing they could have done 3 years ago, 5 years ago, or 10 years ago to better insulate themselves. They took FAR to long to adapt, that's universally recognized, and they're in a week position because of it. Prior to the new Malibu what product did GM produce that pretty much everyone universally recognized as a great competitive car within reach of most of the middle class?
GM screwed up, they are where they are because of many of the decisions they made, ignoring that reality for whatever reason isn’t going to make your argument any more rational. I’m sorry the truth hurts.
mapoftazifosho 1:42PM (5/07/2009)
http://economictimes.indiatimes.com/articleshow/4220625.cms
Enjoy...
Is there still the debate over whether or not Toyota took money from Japanese gov't to help create the Prius.