GM Posts Worse-Than-Expected $15.5 Billion Loss in Second Quarter
By Michelle Krebs August 1, 2008By Michelle Krebs
General Motors reported Friday a second-quarter loss of $15.5 billion, which included a
number of charges related to its latest restructuring moves. Excluding those charges, GM's loss was $6.3 billion.
GM shares initially tumbled 6 percent in reaction to the automaker's announcement of the deeper-than-expected loss, the third-largest quarterly loss in its history. The loss sent GM's stock back into the single digits.
"As our recent product, capacity and liquidity actions clearly demonstrate, we are reacting radpily 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," GM Chairman and CEO Rick Wagoner said in the company's statement issued early Friday morning.
For comparision, in the second quarter of 2007, GM earned $784 million.
GM reported a decline in revenue to $38.2 billion, down from $46.7 billion in the year-ago second quarter. Virtually all of the decline came in North America. GM reported record growth in markets outside of North America. In total, GM reported revenues in Europe, Asia-Pacific, Latin America, Afrida and the Middle East at $20.8 billion for a $1.7 billion increase.
Losses from GM's automotive operations were a reported $9.1 billion, or $4.0 billion when adjusted to exclude special charges, compared with a profit of $1 billion in the year-ago quarter. GM said the losses came from its North American automotive operations where volume dropped combined with strikes by supplier American Axle and some of GM's own local unions halted production.
In terms of vehicle sales, GM sold 2.29 million vehicles worldwide in the second quarter, down 5 percent from a year ago due to a 20 percent decline in North America. Sales outside of North America grew by 10 percent. A record 65 percent of GM's vehicle sales now come from outside of the U.S. GM's global market share stood at 12.3 percent, down 0.9 percent due to the weak North American market.
GM said second-quarter's huge loss was due to several well-reported factors, in addition to the restructuring charges. Among them are:
* significant losses in GM North America due to plummeting industry sales and consumer preference for small, fuel-efficient vehicles instead of profit-rich SUVs and pickups. North American Revenue dropped $10 billion from the 2007 to the 2008 second quarter, to $19.8 billion from $29.7 billion. GM market share fell to 20.2 percent from 22.7 percent in the quarter;
* the lengthy strike by supplier American Axle that shuttered 30 of GM's North American plants;
*charges related to leasing due to plummeting values of SUVs and pickups coming off lease; continued losses at GMAC Financial Services in which GM owns a 49-percent stake with Chrysler owner Cerberus Capital Management owning the rest;
* continued expense obligations to supplier Delphi, formed from former GM parts operations. Delphi has yet to emerge from bankruptcy.
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Just like Ford's earlier annoucement:
1. Anyone could have seen this coming.
2. Why didn't someone at GM make the shift to the $4 gas reality sooner?
3. When will GM ever learn?
4. When will the bleeding stop? It's like watching a victim of an addiction self destructing.
What are their specific plans for pulling out of this?
The domestics have been slow to react to market forces for decades. Now (?) they want to sell Hummer. The first lesson in business is to buy low, sell high. How many ways can they screw up?
At least Ford builds some quality/reliable cars nowadays and Chrysler invented the mini-van and cab forward design. What does GM have to show in the past 50 years that anyone with a good automotive eye would brag about? With all their R&D resources why can't they come up with anything new? Note that the only GM cars recommended in the April 08 Consumer's Report used car listing, other than Buicks, were built at the joint GM/Toyota plant. The same issue could only recommend 5 domestically built current GM cars.
GM does have some talent and I believe can make a great car if it was left up to their engineers and designers. Unfortunately they seem to not be able to get rid of the managerial bacteria (B. Lutz and friends) who think because they've been in the business so long, they know what Americans want. They cannot keep their personal feelings or agenda out of the company and now it is suffering. Creativity, design, and innovation are overlooked as ugly, heavy, fuel inefficient, unreliable, cheap plastic cars are produced decade after decade. GM needs to take their losses, greatly reduce their lineup of models, and build cars that their CURRENT customers will want to continue buying.
GM's managers are just like the French generals of the Second World War; always preparing to fight the last battle.
When will they anticipate instead of react?
They sound like the captain of the Titanic: the iceberg shouldn't have been there; the ship design was flawed; the passengers don't understand how tough it is. All true, but the ship sank.
The board of directors is negligent is not acting. George Fisher (Chairman of the Board), showed his remarkable complacency once before when he presided over the decline of Eastman Kodak. Now he is sitting on his hands again. GM shareholders have to be about as happy as Kodak shareholders.
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