Massive One-time Charges Haunt Gm's Q2

fbachman · August 1, 2008

Automotive News

August 1, 2008 - 7:11 am ET

DETROIT -- General Motors today reported an adjusted loss of $6.3 billion -- before several one-time charges -- during the second quarter. The automaker posted an adjusted gain of $1.3 billion during the same quarter last year.

Including the charges, GM said it posted a net loss of $15.5 billion during the quarter as it took increased charges for its North American restructuring and for its former finance arm, GMAC Financial Services. GM reported net income of $891 million in the second quarter of 2007.

GM posted total revenue of $38.2 billion, down from $46.7 billion during the same quarter last year.

In North America, GM said it lost an adjusted $4.4 billion before taxes and special charges on revenue of $19.8 billion. During the same quarter last year, GM said it posted a comparable gain of $92 million on revenue of $29.7 billion.

The North American loss wiped out a gain of $400 million GM posted for its other operations around the world, giving GM an adjusted loss of $4.0 billion on automotive operations compared with a gain of $1 billion during the same quarter last year.

The biggest one-time charge was $3.3 billion for employee buyouts in North America. GM posted another $1.1 billion charge for North American restructuring and capacity reduction costs.

GM also took at $1.3 billion charge for its 49 percent stake in troubled financier GMAC, which took major writedowns in the quarter due to plummeting residual values of pickups and SUVs. GMAC said on Thursday it lost a total of $2.5 billion during the quarter, including $716 million in writeoffs for auto leasing.

GM also said it lost $2.8 billion in the quarter because of ongoing bankruptcy restructuring at supplier Delphi Corp. It also incurred a $197 million charge for the three-month UAW strike at American Axle & Manufacturing Holdings Inc.

PRESS RELEASE: GM Reports Preliminary Second Quarter Financial Results

FOR RELEASE: 2008-08-01

* Adjusted net loss of $6.3 billion, reported net loss of $15.5 billion

* Results impacted by $9.1 billion of predominantly non-cash special items

* Sales records set in three of four regions

* Q2 liquidity position of $21 billion, plus credit lines of additional $5 billion

DETROIT – General Motors (NYSE: GM) today announced its financial results for the second quarter of 2008, which include significant charges and special items. The reported net loss was $15.5 billion or $27.33 per share for the second quarter, including these charges and special items, compared with net income from continuing operations of $784 million or $1.37 per share in the second quarter of 2007. On an adjusted basis, GM posted a net loss of $6.3 billion or $11.21 per share, compared with net income from continuing operations of $1.3 billion or $2.29 per share in the same period last year.

GM previously announced that it anticipated a significant second quarter loss, driven in large part by costs associated with the American Axle and local U.S. strikes, and charges related to the successful U.S. hourly attrition program, actions to reduce North American truck capacity, Delphi and other matters. The operating and liquidity actions announced on July 15 contemplated weak second quarter results and a continued unfavorable U.S. environment. The company has outlined a strong cadence of product, powertrain, capacity and liquidity actions over the past 60 days, to realign the business with current U.S. economic and auto market conditions, and position the company for profitable global growth.

Some of those actions include cessation of production at four truck plants, shift reductions at two truck plants, the addition of shifts at two car plants, announcement of the new Chevrolet global small car program and next generation Chevrolet Aveo compact car, introduction of a high-efficiency 4-cylinder engine for U.S. application, salaried headcount reductions and compensation actions, deferral of certain payments to the UAW VEBA, suspension of the dividend on common stock, reductions in sales and marketing budgets, the strategic review of the Hummer brand and production funding approval for the Chevrolet Volt extended range electric vehicle.

"As our recent product, capacity and liquidity actions clearly demonstrate, we are reacting rapidly to the challenges facing the U.S. economy and auto market, and we continue to take the aggressive steps necessary to transform our U.S. operations," said GM Chairman and CEO Rick Wagoner. "We have the right plan for GM, driven by great products, building strong brands, fuel-economy technology leadership and taking full advantage of global growth opportunities."

GM's second quarter results were primarily driven by several factors: significant losses in GM North America (GMNA) due to continuing U.S. industry volume declines and shifts in vehicle mix, the long strike at American Axle and large lease-related charges; a number of special charges associated with GM's ongoing restructuring actions; continued losses at GMAC Financial Services (GMAC) and updated estimates regarding recoveries and expectations of assumed benefit obligations in the Delphi bankruptcy.

GM recorded $9.1 billion of special items, predominantly non-cash in nature for the current quarter or near-term periods, which include:

* $3.3 billion relating to the 2008 GMNA hourly special attrition program

* $2.8 billion adjustment to the Delphi reserve

* $1.1 billion GMNA restructuring and capacity related costs

* $1.3 billion impairment of GM's equity interest in GMAC

* $340 million Canadian Auto Workers contract-related accounting charges

* $197 million related to settlement of the strike at American Axle

Details on these and all other special items are in the financial highlights section of this release.

In addition, the GMNA adjusted net income results reflect a $1.6 billion charge related to lower residual values for off-lease vehicles. The total impact of declining residual values in GM's second quarter earnings was $2.0 billion, including impairments of lease assets at both GMAC and GM.

Revenue for the second quarter was $38.2 billion, down from $46.7 billion in the year-ago quarter, which is more than accounted for by the decline in GMNA revenues. Combined revenues for the GM Europe (GME), GM Asia Pacific (GMAP) and GM Latin America, Africa and Middle East (GMLAAM) regions were $20.8 billion, up $1.7 billion over the same period 2007.

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

GM Automotive Operations

The second quarter adjusted automotive loss of $4.0 billion ($9.1 billion reported) reflects the losses in GMNA driven largely by volume declines including the impact of the American Axle and local strikes as well as adjustments to lease vehicle residual reserves. In addition, GMAP results were negatively impacted by adjustments relating to hedge accounting. The losses were partially offset by exceptionally strong performance in the GMLAAM region and continued profitability in GME. The loss compares with adjusted automotive earnings from continuing operations of $1 billion in the second quarter of 2007 (reported earnings of $803 million).

GM sold 2.29 million vehicles worldwide in the second quarter, down 5 percent year over year. Sales in GMNA were down 20 percent, or 236,000 units versus the year-ago period, while sales outside of North America grew by 10 percent or 116,000 units. A record 65 percent of GM unit sales for the second quarter were outside the United States. Global market share was 12.3 percent, down 0.9 percent due to weakness in North America.

GMNA revenue for the second quarter was $19.8 billion, down from $29.7 billion in the year-ago period. The decline was largely attributable to a markedly weaker U.S. auto market and lost production due to the work stoppage at American Axle, and at several GM facilities in May and June. Although volume overall was down 20 percent, some of GM's most recently launched cars and crossovers continue to sell especially well, including the Chevrolet Malibu and Cadillac CTS, up 113 percent and 33 percent, respectively, over the year-ago period.

GMNA adjusted results reflect significantly lower volume resulting from overall industry deterioration, continued dealer stock reductions, the negative impact of industry segment shifts, model/option mix and an increase to lease vehicle residual reserves related to declining residual values. The results also reflect favorable structural and net material cost performance and pension/OPEB/manufacturing savings.

GME

GME achieved record second-quarter sales of 590,000 units, driven by 48 percent sales growth in Russia and exceptional performance of the Chevrolet brand, which saw a 19 percent increase in sales to 137,000 units and record market share of 2.2 percent in the second quarter. Material and structural cost performance improved during the quarter. However, unfavorable exchange rates and an economic slowdown in key markets including Spain, Italy and the U.K. had a significant impact on earnings.

GMLAAM

Improved mix, net pricing and material cost performance along with strong sales performance in key markets helped GMLAAM to improve its year-over-year earnings before tax by over 50 percent, to $445 million. Volume for the region was up nearly 18 percent over 2007, and quarterly sales records were set in Brazil, Chile, Egypt and North Africa.

GMAP

The second quarter earnings for GMAP reflect a $285 million pretax accounting charge related to adjusting prior FAS133 hedge accounting, partially offset by gains in India and Thailand, and improved operating performance at Australia's Holden.

GMAC

On a standalone basis, GMAC reported a net loss of $2.5 billion for the second quarter 2008. Affecting results were continuing large losses at Residential Capital, LLC (ResCap) related to asset sales, valuation adjustments and loan loss provisions, as well as a $716 million pre-tax impairment of lease assets in the automotive finance business as a result of lower used vehicle prices, particularly for SUVs. These items were partially offset by profitable results in the insurance and international auto finance businesses. GM reported an adjusted loss of $1.2 billion for the quarter attributable to GMAC, as a result of its 49 percent equity interest.

Following a first quarter impairment against its investment in GMAC, GM conducted further analysis in the second quarter to determine if additional impairments were required based on current fair value estimates. Factors considered include continued deterioration in the mortgage and consumer credit markets and a more challenging North American automotive financing environment. As a result, GM recorded impairment charges totaling $1.3 billion against its common and preferred equity interests in GMAC.

Cash and Liquidity

Reflecting the non-cash nature of many of the charges recorded in GM's reported second-quarter results, cash, marketable securities, and readily-available assets of the Voluntary Employees' Beneficiary Association (VEBA) trust totaled $21.0 billion on June 30, 2008, down from $23.9 billion on March 31, 2008. The change in liquidity reflects negative adjusted operating cash flow of $3.6 billion in the second quarter 2008, driven primarily by weaker results in GMNA. As of June 30, including undrawn, committed U.S. credit facilities of approximately $5 billion, GM has access to approximately $26 billion in liquidity. In July, GM provided notice to draw $1 billion under its secured revolving loan facility.

As announced on July 15, GM is taking operating and related actions to improve cash flow by approximately $10 billion through the end of 2009. In addition, the company has outlined plans to raise approximately $5 billion through capital markets activities and asset sales (See related news release). GM is confident that these initiatives, along with its current cash position and $4-5 billion of committed U.S. credit lines, will provide the company with ample liquidity to meet its operational needs through 2009.

Results for the second quarter of 2008 are preliminary and may be revised prior to the filing of GM's quarterly Form 10-Q in August

D&SYukonDenali · August 1, 2008

If you are going to have a bad quarter, might as well make it really bad with the one-time write-offs. The street knew this was coming and majority of its impact should have built into the stock price already over the last couple of weeks.

Won_Hunglo · August 1, 2008

The worst news is not the cash loss but the 20% decline in North America vehicle sales. Consumers are leaving & not coming back. This is typical of any company that sells high dollar products that is on the verge of filing bankrupcy. I got caught up in one of these deals in 2001. When OMC filed bankrupcy I lost my 5 year factory & extended warranty on on my one month old 2001 $16,000 Evinrude outboard. It was trully "all mine." Luckyly I had no repairs needed but there was no resale value in that engine. Live & learn.

D&SYukonDenali · August 1, 2008

I would think the decrease in US sales is not GM specific; I would bet every auto company US units are down. As for bankruptcy, at this point it would be protection just to rewrite contracts (like the airline industry). However, I see that as unlikely. The write-off today avoids these financial hits to future earnings, which per the GM plan to return to profitability by 2010, will increase the probablility of showing profitability in that year. This will also allow the executives to hit their financial incentives in the upcoming years, as the earning will not be impacted by these charges.

rvsahs · August 1, 2008

The losses by GM are a stark contrast to the record earnings reported by Exxon-Mobil and the other oil giants! And Wall Street was "disappointed" that their earnings wasn't higher than $11 billion? Give me a frickin' break!

Won_Hunglo · August 1, 2008

I would think the decrease in US sales is not GM specific; I would bet every auto company US units are down.

Toyota & Honda sales are up. The 20% less customers are not leaving the market, but are going to higher quality & more fuel efficent cars, not GM trucks. GM was caught with the wrong mix of products when gas went sky high. The jap automakers simply rule the fuel effecient car market.

VMax2007 · August 2, 2008

I would think the decrease in US sales is not GM specific; I would bet every auto company US units are down.

Toyota & Honda sales are up. The 20% less customers are not leaving the market, but are going to higher quality & more fuel efficent cars, not GM trucks. GM was caught with the wrong mix of products when gas went sky high. The jap automakers simply rule the fuel effecient car market.

Numbers please?

http://www.toyota.com/about/news/corporate...01-1-sales.html

The Toyota Division posted July sales of 175,242 units, a decrease of 17.9 percent from last July. The Lexus Division reported July sales of 22,182 units, a decrease of 24.6 percent from the year-ago month.

Toyota Division

Toyota Division passenger cars recorded July sales of 114,880 units, down 5.4 percent from the same period last year.

fbachman · August 2, 2008

I would think the decrease in US sales is not GM specific; I would bet every auto company US units are down.

Toyota & Honda sales are up. The 20% less customers are not leaving the market, but are going to higher quality & more fuel efficent cars, not GM trucks. GM was caught with the wrong mix of products when gas went sky high. The jap automakers simply rule the fuel effecient car market.

Numbers please?

http://www.toyota.com/about/news/corporate...01-1-sales.html

The Toyota Division posted July sales of 175,242 units, a decrease of 17.9 percent from last July. The Lexus Division reported July sales of 22,182 units, a decrease of 24.6 percent from the year-ago month.

Toyota Division

Toyota Division passenger cars recorded July sales of 114,880 units, down 5.4 percent from the same period last year.

Automotive News

August 1, 2008 - 12:54 pm ET

UPDATED: 8/1/08 4:51 p.m. EDT

Chrysler falls 28.8%, GM 26.1%, Ford 14.7%, Toyota 11.9%, Honda 1.6%

Numbers in this table are calculated by Automotive News based on actual monthly sales reported by the manufacturers and may differ from numbers reported elsewhere.

Source: Automotive News Data Center

Note: Other includes estimates for Ferrari, Lamborghini and Lotus; actuals for Maserati

*Includes Mini and Rolls-Royce

**DaimlerChrysler sold the Chrysler group on Aug. 3, 2007

***Incudes Maybach, Mercedes-Benz and Smart

****Includes Jaguar and Land Rover (through May 31, 2008) and Volvo; Aston Martin's estimated sales are included through May 2007

*****Includes Saab

†Includes Honda Division and Acura

††Includes Hyundai and Kia

†††Includes Nissan Division and Infiniti

‡Tata Motors includes Jaguar and Land Rover as of June 1, 2008

‡‡Includes Toyota Division, Lexus and Scion

‡‡‡Includes VW, Audi and Bentley

DETROIT -- Automakers were hammered in July by double-digit drops in sales. Of the six major automakers, only Nissan Motor Co. reported an increase.

A weak economy, high gasoline prices and a product mix ill-suited to consumer demand drove overall U.S. car and light truck sales down 13.6 percent from last July, to 1.1 million vehicles.

For the first seven months, total U.S. sales fell to 8.5 million vehicles, a 10.5 percent decline from the same period a year ago.

With weak car sales -- and worse pickup and SUV sales -- General Motors' total light-vehicle sales were down 26.1 percent in July to 233,340 units. GM's car sales were down 12.0 percent to 116,853 units. Light truck sales fell 36.4 percent to 116,487 units. Last month was the first time since April 2001 that GM sold more cars than trucks.

Chrysler LLC continued to be the biggest loser, with sales plunging 28.8 percent to 98,109 units. It barely managed to hold off Nissan -- which sold 95,319 vehicles -- and hang onto fifth place.

American Honda Motor Co., which has seemed almost bulletproof in recent months, reported a decline of 1.6 percent. Relatively strong Honda-brand car sales couldn't offset weak pickup and SUV sales and a poor performance by Acura.

Nissan was the exception in July, reporting an 8.5 percent sales increase, to 95,319. It managed to increase pickup and SUV sales 18.3 percent, largely on the strength of the Frontier and Xterra.

Incentives helped. Nissan is offering $3,000 rebates on the Xterra and $1,750 to $2,500 on the Frontier.

Nissan's car sales rose by only 2.4 percent.

Toyota Motor Corp. reported an 11.9 percent decline in July sales. Toyota sold 197,424 vehicles last month.

Pickup sales plunged 32.4 percent in July, to 37,113 units. SUV sales fell 26.3 percent to 36,052 units. Car sales were flat.

Sales of the Camry were up slightly, while Prius sales declined as the company struggled to meet demand.

At Ford Motor Co., sales were down 14.7 percent in July, to 160,990 vehicles. Through July, Ford sales were down 14.1 percent compared with the first seven months of 2007, to 1,312,198 vehicles.

The figures do not include Jaguar and Land Rover sales. Ford's sale of the two brands to Tata Motors closed June 1. The totals also exclude Mazda, a Ford affiliate.

Ford's Volvo unit remains an exception in an otherwise relatively resilient luxury car market. The brand slumped in July, posting a 46.3 drop in the month, to 5,124 units. Volvo's volume-leading XC90 SUV fell 42.6 percent in the month, to 1,546.

Some good news

Ford's car sales for the month rose 7.8 percent, to 57,177 units.

The compact Focus had another solid month, with sales of 15,200 units, up 15.6 percent. Ford's Fusion sedan was up 13.5 percent for the month, bringing sales to 10,607.

Sales of SUVs and trucks continued to wither. Ford said SUV sales declined 54.4 percent in July and were down 37.0 percent in the first seven months of 2008 compared with the same period of last year. Ford said total light truck sales fell 22.1 percent to 99,229, down from 127,309 units in July 2007.

Ford's F-series pickups dropped 20.6 percent in July, to 44,829 units. Sales of the Expedition SUV were down 57.5 percent, and sales of the Explorer dropped 51.8 percent.

July marked the debut of Ford's Flex crossover and the Lincoln MKS. Ford sold 2,204 Flexes in the month. The MKS helped make Lincoln Ford's strongest brand, although that's a dubious distinction.

Lincoln sales were off only 1.2 percent in July from a month ago. Year-to-date, Lincoln sales are still down 20.1 percent.

The Mercury Milan was down 17.5 percent for the month, but still remains the brand's only model that is up for the year -- barely. Sales of the Milan year-to-date are up 0.9 percent, to 22,262.

Just after Ford released its sales data, Fitch Ratings downgraded Ford's credit rating to a B-, from a B. It did the same to Ford Motor Credit Co.

General disarray

July was especially dark for GM. Without the aggressive incentives it put in place in June, its truck sales fell 36.4 percent, to 116,487. Even its car sales fell 12.0 percent to 116,853 units.

That marks an important but painful shift for GM. Cars made up just over 50 percent of total U.S. light vehicle sales last month. In July of 2007, cars accounted for just 42 percent of GM's sales.

GM's best-selling vehicle, the Chevrolet Silverado pickup, was off 29.8 percent last month, to 32,989.

Still, some of GM's cars posted big gains. The redesigned Chevrolet Malibu was up 78.6 percent compared with the previous-generation model. The Saturn Aura was up 23.6 percent, to 7,202 units, and the Chevrolet Cobalt was up 3.5 percent to 16,410 units.

The Buick brand had a terrible month: off 39.9 percent. Things at Hummer were even worse, with just 1,877 sales in July -- down 61.7 percent from July 2007.

Tough times at Chrysler

Only five Chrysler LLC models escaped double-digit declines for July: the Chrysler Town & Country; the Dodge Avenger, Caliber and Viper; and the Jeep Wrangler.

Chrysler's car sales were almost as bad as its truck sales, dropping 28.2 percent to 29,056 units. Chrysler's truck sales fell 29.0 percent to 69,053 units.

The company unveiled new incentives today to help stanch the losses and move inventory. Chrysler Financial stopped leasing vehicles, effective today.

Meanwhile, reliance on cars helped Volkswagen of America Inc. in July. Its sales rose 1.4 percent compared with last year, to 27,441 units. Through July, VW sold 189,616 vehicles, a decline of 0.1 percent from a year ago.

VW's best-selling vehicle, the Jetta, sold well in the face of high fuel prices. Its sales rose 14.7 percent last month, to 9,245. The company's smaller cars also did well, with sales of the GTI rising 31.4 percent to 1,619. Coupled with an increase in sales of the R32, that more than offsets the 19.2 percent decline in sales of the Rabbit.

The Tiguan, VW's new small SUV, sold 846 units. Sales of its larger SUV, the Touareg, were down 30.1 percent to 404 units.

VW's numbers include Audi and Bentley. Audi's sales fell 4.5 percent last month.

Daimler AG's Mercedes-Benz unit also had a good month. U.S. sales rose 11.6 percent to 20,733. The first seven months of 2008 were the best in Mercedes' history, the company said.

Porsche sales were down 3 percent to 3,230 on a slip in sales of its Cayenne SUV. Porsche's car sales were up slightly.

Bleak outlook

Executives tried to stay optimistic on calls with reporters and analysts today, but it was hard to hide the bleak state of the industry.

"Over the next year, the unfolding credit situation customers are taking with them into dealerships will take center stage," Ford marketing chief Jim Farley said.

Toyota Division general manager Bob Carter said, "The auto industry remained in lockstep with the challenges faced by the overall economy."

While the economy was boosted by the economic stimulus package, and second-quarter spending grew at a faster clip, the rise in consumer spending mostly went toward food and gasoline, while "cars are on the sidelines," Carter said. "Big-ticket items, and specifically automobiles, aren't enjoying any kind of recovery."

Carter described the current sales environment as a "short-term hurdle that we need to get through.

"That said, the industry is seeing the total volume numbers suppressed by inventory availabilities. We are trying to increase all our four-cylinders. If we had more (four-cylinder) product, we would have sold more product," Carter said.

D&SYukonDenali · August 2, 2008

Thanks for the numbers Grumpy. I thought a remember reading that about the manufacturers sales, but I have a hard enough time keeping with my own industries, let alone the auto market.

Dana_15 · August 2, 2008

So as a whole the industry is down 13.2% in sales compared to last July...thats not good.

chitownpete · August 2, 2008

So as a whole the industry is down 13.2% in sales compared to last July...thats not good.

Its natural for things to rise and fall, especially when the economy is artificially high due to people going in debt for more than they can afford. It needed to happen, its a natural healthy thing. Unless this is just the beginning of our new life now that we have given so many good jobs and money to the Chinese.

frogbiscuit · August 2, 2008

The losses by GM are a stark contrast to the record earnings reported by Exxon-Mobil and the other oil giants! And Wall Street was "disappointed" that their earnings wasn't higher than $11 billion? Give me a frickin' break!

Just like GM's losses aren't as bad as they seem, the same with ExxonMobil's profits. ExxonMobil reported less than expected revenues of $140 billion v. a forecasted $144 billion. ExxonMobil's profits were 7.6% of revenues. Oil Production actually fell 8% and overall production fell 5.6%

Don't let Brian Williams or Charlie Gibson suck you in until you see all the numbers.