Loss Leader: GM drops $15.5 billion in second quarter of 2008
August 1, 2008
Even when you expect it, it can still come as a shock -- with the economy slowing and SUV sales in free fall, last week Ford revealed it lost $8.7 billion in the second quarter of 2008. Though privately-owned Chrysler no longer has to reveal its finances, the automaker's recent move to abandon leasing suggests things aren't going so hot in Auburn Hills, either. Now it's GM's turn to join the party, and if you thought at least one of the Big Three would pull off an upset and post decent results, sadly you'd be wrong -- combining its fiscal performance and several one-time charges, the General lost a whopping $15.5 billion in the second quarter of this year.
Though GM has seen its sales improve in both Europe and Asia and actually turned a $400 million profit overseas, the automaker's North American performance quickly wiped out those gains, with revenue down 18 percent for a loss of $4.4 billion. This comes despite continued layoffs, production cuts, and a new restructuring plan announced two weeks ago by CEO Rick Wagoner to fend off persistent rumors the company was going bankrupt. With its worldwide automotive unit posting an overall loss of $4.0 billion, however, no doubt this speculation will continue.
Beyond car sales, the majority of the General's losses came from an array of special charges caused by financial problems, strikes, and layoffs. Among the charges a full $3.3 billion was spent buying out North American workers, with an additional $1.1 billion needed for restructuring and reducing production. Obligations related to parts supplier Dephi's bankruptcy filing cost the automaker $2.8 billion and struggles at GMAC took another $1.3 billion out of GM's pockets, while a new Canadian Auto Workers contract and stepping in to settle the American Axle strike totaled $340 million and $197 million, respectively.
Despite the bad news Wagoner continues to be bullish on the General's future, saying that with cost cutting and several new products in the pipeline, the automaker is "reacting rapidly to the challenges facing the U.S. economy and auto market" and has a strong plan "driven by great products" and "fuel economy technology leadership" to get back on its feet. In the short term, however, GM's liquidity has dropped by $2.9 billion since the first quarter to a total of $21 billion in cash and available credit. According to COO Fritz Henderson GM needs a minimum of $11 billion to $14 billion in cash to stay afloat, and the company plans to "drive down cost and be lean on working cash flow" in order to preserve its assets.
Like Ford, GM is quickly working to bring more desirable and fuel-efficient products to market as quickly as it can, and recently gave workers a sneak peak at the production-ready 2010 Chevy Volt PHEV. With the onslaught of bad news plaguing the Big Three and the auto industry in general, it's hard to believe that at this time last year GM managed to post a $1.3 billion profit -- of course this was before gas prices crossed $4 a gallon nationally and many used SUVs became virtually worthless. With several hot new models due in showrooms soon, however, GM is looking to whether the current storm and sees better times ahead -- that said if the company continues to follow Chrysler and eliminates its leasing program, things could well become worse before they get better.
Source: GM and Automotive News (Subscription required)