GM announces huge losses, actions to increase liquidity
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 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 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.
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.
To regain profitability, GM announced that asset sales of $2 billion to $4 billion were in process, including the sale of Hummer, ACDelco and Strasbourg facilities, and $10 billion in cost savings. Additional actions targeted at further improving liquidity by $5 billion by end of 2009 include cutting 2009 capital spending by $2.5 billion, while keeping key product and technology programs on track. The plan is to have further GMNA structural cost reductions of $1.5 billion, further working capital improvements of $500 million, and further salaried employment cost reductions of $500 million, while engaging the U.S. government to aid the domestic auto industry. Discretionary spending, such as travel, use of consulting resources, and non-scheduled overtime for hourly and salaried employees, will be restricted. 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.
Despite the seizing up of the credit markets, GM completed some capital market transactions in September to improve liquidity by $500 million by year-end 2009. While GM has unencumbered assets of more than $20 billion that it could 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, the timing of the $2-3 billion of capital market financing GM initially targeted remains uncertain.
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.
GM has a decent pipeline of new vehicles over the next two years. In the U.S., China, and Europe, 22 new vehicles will be launched in 2009, and 19 in 2010. In the U.S., GM will launch 15 new vehicles through year-end 2010, 14 of which will be cars or crossovers, including the Cadillac CTS wagon and SRX crossover, Chevrolet Camaro Coupe, and Equinox crossover in 2009, and Saab 9-4x crossover and Chevrolet Cruze small car in 2010.
The “major changes” rumored for this announcement have generally not come to pass.
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