GM Loses 3.7 Billion Dollars During the Second Quarter of 2008
07-31-2008, 06:30 PM
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GM Loses 3.7 Billion Dollars During the Second Quarter of 2008 Bloomberg Pegs GM’s Q2 Loss at $3.7b
By Jeff Green and Greg Bensinger
July 31 (Bloomberg) -- Collapsing values of leased sport- utility vehicles may force General Motors Corp. Chief Executive Officer Rick Wagoner to announce $2.3 billion in losses tomorrow on top of more than $1.4 billion that analysts have forecast.
Losses on so-called residual values of the vehicles may also prompt GMAC LLC, partly owned by GM, to ``significantly'' curtail leasing, said Lehman Brothers analyst Brian Johnson. Leasing accounts for 28 percent of the Detroit-based automaker's U.S. sales this year.
Chrysler LLC said it would stop leasing and Ford Motor Co.'s credit unit last week reported a $2.1 billion pretax writedown for losses on the transactions, twice what analysts forecast.
``It's surprising how quickly these values have fallen off a cliff,'' said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets, including GM bonds.
The automaker's leasing loss may exceed $1 billion, he said. ``Residual values are going to be the wild card for GM in the quarter.''
Exiting or limiting leasing may further thwart Wagoner's drive to end losses that totaled $54 billion since 2004. His strategy has been to cut manufacturing costs and shift GM's emphasis to cars from trucks, which make up about 60 percent of U.S. sales.
What It's Worth
The residual value is what a vehicle is worth when a customer returns it at the end of a lease. Gasoline that topped $4 a gallon this year has depressed demand for SUVs and other light trucks and reduced their value.
GMAC today reported a $716 million pretax expense for residual-value losses as part of a $2.5 billion second-quarter net loss. GMAC said it was able to reduce that cost because of $1.55 billion that GMAC expects to receive from GM through risk- sharing and other agreements and $350 million in payments already made.
The finance and mortgage company said it has $30 billion in North American leases, including $12 billion in sport-utility vehicles and $6 billion in trucks, categories facing declining sales because of soaring gasoline prices.
``This is clearly one more headwind they have to fight,'' said Johnson of Lehman Brothers, referring to GM. He advises holding the stock and forecasts a $3.37-a-share loss. He had forecast as much as a $2.3 billion cost to GM from residual losses before the GMAC results. ``If they end leasing, it could end up being a 5 to 10 percent headwind to sales,'' he said.
GM's net loss may end up being 50 percent bigger than Ford's $8.7 billion shortfall, he said.
Analysts' Estimates
Tomorrow GM may report a loss of $2.41 a share, excluding some costs, according to the average of 13 analysts surveyed by Bloomberg. On that basis, GM reported a profit of $1.3 billion, or $2.48 a share, for the year-earlier period and net income of $891 million, or $1.56 per diluted share.
The company won't discuss results for the latest quarter before they're released, spokeswoman Renee Rashid-Merem said.
GM fell 33 cents, or 2.9 percent, to $11.07 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has lost 56 percent of its value this year.
The automaker said on July 15 it would have a ``significant'' second-quarter loss. It previously detailed $2 billion in pretax losses from production cutbacks resulting from labor disputes at plants and a supplier. GM also said it was ending the 25 cents-a-share quarterly dividend and trimming salaried payroll costs by 20 percent.
Lowered Credit Rating
Standard & Poor's today said it cut GM's credit rating one level to B-, or six steps below investment grade, because falling U.S. sales are causing the automaker to use more cash than anticipated. S&P made the same change at GMAC.
If GMAC, owned 49 percent by GM and 51 by Cerberus Capital Management LP, were to end leasing in the U.S. for General Motors vehicles, the carmaker would lose as many as 3 percent of its buyers, said Art Spinella, president of Bandon, Oregon-based CNW Market Research.
Chrysler, owned by Cerberus, the New York-based private- equity firm, said last week it would end leases today. Leases account for 22 percent of the company's sales, Spinella said.
Almost 800,000 of the least fuel-efficient SUVs will be returned by buyers this year on two- or three-year leases. The models will each be worth about $6,100 less than GM, Ford and other automakers initially figured, said Spinella, who collects leasing data from dealers and banks.
That's a $4.9 billion shortfall for the industry, he said.
GMAC Chief Financial Officer Robert Hull today said the lender's residual losses average $11,000 a vehicle for GM models.
Higher Standards
Ford this week said it would raise credit standards to make it harder to lease trucks, while GMAC said it would no longer offer subsidized leases in Canada, making them less attractive to buyers. Such deals may include inflated assumptions about residual values or below-market finance rates.
JPMorgan Chase & Co. also said it will end leases on Chrysler models today. Wells Fargo & Co. said it's halting the contracts for all models.
``This is pretty bad,'' Spinella said. ``So many different issues are converging right now for automakers.''
`Incentivized' Deals
GM North American sales chief Mark LaNeve told dealers in an e-mail yesterday that the automaker will offer ``incentivized'' U.S. auto leases at least through August. He didn't address future months and said leasing will continue to make up less of the automaker's sales in the future.
GMAC said today that it will take steps to ``reduce the volume of new lease originations in the U.S.'' and will ``increase pricing and returns'' on those deals.
About 7 percent of prospective U.S. auto buyers wouldn't buy new vehicles if subsidized leases were unavailable, Spinella said. Leases account for 15 percent of all sales, he said.
Automotive Lease Guide, which banks use to set residual values, said it's lowering those for full-size SUVs about 8.7 percentage points, spokesman Fernando Ubeda said. An 8 percentage-point cut in residual values would add $100 to the monthly cost of a $45,000 vehicle, Deutsche Bank analyst Rod Lache wrote in a July 29 report.
Without attractive leases, it will cost consumers more to buy a car or truck. A well-appointed 2008 Chevrolet Tahoe would cost about $610 a month on a three-year lease compared with $795 per month if purchased with a typical five-year loan, said Bruce Litvin, sales manager at Joe Lunghamer Chevrolet in Waterford, Michigan.
``We're already selling less units in a given month than we used to,'' Litvin said in an interview. ``If you take away leases you could drive dealerships like ours to barely a trickle.''
By Jeff Green and Greg Bensinger
July 31 (Bloomberg) -- Collapsing values of leased sport- utility vehicles may force General Motors Corp. Chief Executive Officer Rick Wagoner to announce $2.3 billion in losses tomorrow on top of more than $1.4 billion that analysts have forecast.
Losses on so-called residual values of the vehicles may also prompt GMAC LLC, partly owned by GM, to ``significantly'' curtail leasing, said Lehman Brothers analyst Brian Johnson. Leasing accounts for 28 percent of the Detroit-based automaker's U.S. sales this year.
Chrysler LLC said it would stop leasing and Ford Motor Co.'s credit unit last week reported a $2.1 billion pretax writedown for losses on the transactions, twice what analysts forecast.
``It's surprising how quickly these values have fallen off a cliff,'' said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets, including GM bonds.
The automaker's leasing loss may exceed $1 billion, he said. ``Residual values are going to be the wild card for GM in the quarter.''
Exiting or limiting leasing may further thwart Wagoner's drive to end losses that totaled $54 billion since 2004. His strategy has been to cut manufacturing costs and shift GM's emphasis to cars from trucks, which make up about 60 percent of U.S. sales.
What It's Worth
The residual value is what a vehicle is worth when a customer returns it at the end of a lease. Gasoline that topped $4 a gallon this year has depressed demand for SUVs and other light trucks and reduced their value.
GMAC today reported a $716 million pretax expense for residual-value losses as part of a $2.5 billion second-quarter net loss. GMAC said it was able to reduce that cost because of $1.55 billion that GMAC expects to receive from GM through risk- sharing and other agreements and $350 million in payments already made.
The finance and mortgage company said it has $30 billion in North American leases, including $12 billion in sport-utility vehicles and $6 billion in trucks, categories facing declining sales because of soaring gasoline prices.
``This is clearly one more headwind they have to fight,'' said Johnson of Lehman Brothers, referring to GM. He advises holding the stock and forecasts a $3.37-a-share loss. He had forecast as much as a $2.3 billion cost to GM from residual losses before the GMAC results. ``If they end leasing, it could end up being a 5 to 10 percent headwind to sales,'' he said.
GM's net loss may end up being 50 percent bigger than Ford's $8.7 billion shortfall, he said.
Analysts' Estimates
Tomorrow GM may report a loss of $2.41 a share, excluding some costs, according to the average of 13 analysts surveyed by Bloomberg. On that basis, GM reported a profit of $1.3 billion, or $2.48 a share, for the year-earlier period and net income of $891 million, or $1.56 per diluted share.
The company won't discuss results for the latest quarter before they're released, spokeswoman Renee Rashid-Merem said.
GM fell 33 cents, or 2.9 percent, to $11.07 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has lost 56 percent of its value this year.
The automaker said on July 15 it would have a ``significant'' second-quarter loss. It previously detailed $2 billion in pretax losses from production cutbacks resulting from labor disputes at plants and a supplier. GM also said it was ending the 25 cents-a-share quarterly dividend and trimming salaried payroll costs by 20 percent.
Lowered Credit Rating
Standard & Poor's today said it cut GM's credit rating one level to B-, or six steps below investment grade, because falling U.S. sales are causing the automaker to use more cash than anticipated. S&P made the same change at GMAC.
If GMAC, owned 49 percent by GM and 51 by Cerberus Capital Management LP, were to end leasing in the U.S. for General Motors vehicles, the carmaker would lose as many as 3 percent of its buyers, said Art Spinella, president of Bandon, Oregon-based CNW Market Research.
Chrysler, owned by Cerberus, the New York-based private- equity firm, said last week it would end leases today. Leases account for 22 percent of the company's sales, Spinella said.
Almost 800,000 of the least fuel-efficient SUVs will be returned by buyers this year on two- or three-year leases. The models will each be worth about $6,100 less than GM, Ford and other automakers initially figured, said Spinella, who collects leasing data from dealers and banks.
That's a $4.9 billion shortfall for the industry, he said.
GMAC Chief Financial Officer Robert Hull today said the lender's residual losses average $11,000 a vehicle for GM models.
Higher Standards
Ford this week said it would raise credit standards to make it harder to lease trucks, while GMAC said it would no longer offer subsidized leases in Canada, making them less attractive to buyers. Such deals may include inflated assumptions about residual values or below-market finance rates.
JPMorgan Chase & Co. also said it will end leases on Chrysler models today. Wells Fargo & Co. said it's halting the contracts for all models.
``This is pretty bad,'' Spinella said. ``So many different issues are converging right now for automakers.''
`Incentivized' Deals
GM North American sales chief Mark LaNeve told dealers in an e-mail yesterday that the automaker will offer ``incentivized'' U.S. auto leases at least through August. He didn't address future months and said leasing will continue to make up less of the automaker's sales in the future.
GMAC said today that it will take steps to ``reduce the volume of new lease originations in the U.S.'' and will ``increase pricing and returns'' on those deals.
About 7 percent of prospective U.S. auto buyers wouldn't buy new vehicles if subsidized leases were unavailable, Spinella said. Leases account for 15 percent of all sales, he said.
Automotive Lease Guide, which banks use to set residual values, said it's lowering those for full-size SUVs about 8.7 percentage points, spokesman Fernando Ubeda said. An 8 percentage-point cut in residual values would add $100 to the monthly cost of a $45,000 vehicle, Deutsche Bank analyst Rod Lache wrote in a July 29 report.
Without attractive leases, it will cost consumers more to buy a car or truck. A well-appointed 2008 Chevrolet Tahoe would cost about $610 a month on a three-year lease compared with $795 per month if purchased with a typical five-year loan, said Bruce Litvin, sales manager at Joe Lunghamer Chevrolet in Waterford, Michigan.
``We're already selling less units in a given month than we used to,'' Litvin said in an interview. ``If you take away leases you could drive dealerships like ours to barely a trickle.''
08-01-2008, 08:30 AM
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GM posts $15.5 billion 2nd-quarter loss
Aug 1, 8:04 AM (ET)
By TOM KRISHER and DEE-ANN DURBIN
DETROIT (AP) - General Motors Corp. (GM) said Friday its losses widened to $15.5 billion in the second quarter as North American sales plummeted and the company faced expenses due to labor unrest and its massive restructuring plan.
The loss of $27.33 per share is the third-worst quarterly loss in the automaker's history. In the same period a year earlier, GM recorded a net profit of $891 million, or $1.56 per share.
Revenue for the April-June period was $38.2 billion, down $8.5 billion from a year earlier.
The company said its loss included $9.1 billion in one-time charges, including $3.3 billion for the buyouts of 19,000 U.S. hourly workers who left at the end of June and $2.8 billion in liabilities related to Delphi Corp. (DPHIQ), its former parts division.
It also included $1.3 billion worth of write-offs because of a decline in the value of GMAC Financial Services' portfolio of trucks and sport utility vehicles. GM owns 49 percent of GMAC, which has suffered big losses when leases end and it tries to sell the now-unpopular vehicles at depressed prices.
GM also took a $197 million charge related to the settlement of a nearly three-month strike at supplier American Axle and Manufacturing Holdings Inc., which shut down more than 30 GM plants. GM agreed to help American Axle fund worker buyouts as part of the settlement.
Without the one-time charges, GM lost $6.3 billion, or $11.21 per share. Twelve analysts surveyed by Thomson Financial predicted a $2.62 per share loss on revenue of $44.57 billion.
GM shares fell 7.4 percent to $10.25 in premarket trading from a close of $11.07 Thursday.
Ray Young, GM's chief financial officer, said the company burned through $3.6 billion in cash during the second quarter, which he attributed largely to reducing the company's inventory by nearly 90,000 vehicles to less than 800,000.
He said GM does not expect a similar reduction in future quarters, so the cash burn should be smaller for the rest of the year.
"In that respect, the negative cash flow in the second quarter is overstated," he said.
Young said GM ended the quarter with $21 billion in cash and $5 billion available through credit lines for total liquidity of $26 billion, which he called a strong position.
The company already has announced plans to generate another $15 billion in liquidity in the next 18 months, he said.
"We're going to get the second quarter behind us and just move ahead," he said.
The $15.5 billion loss is less than half GM's record $38.6 billion loss in the third quarter of last year. That loss was due to a charge for accumulated deferred tax credits. The second-worst loss was $21 billion in the first quarter of 1992.
GM said its revenues outside North America rose by $1.7 billion to $20.8 billion in the quarter, but those gains were more than offset by losses in North America, where high gas prices and the weak economy have wreaked havoc on the auto industry.
North American revenues fell by nearly $10 billion to $19.8 billion for the quarter as sales in the region fell 20 percent. Work stoppages at American Axle and several other facilities in May and June also contributed to the decline, GM said.
On July 15, GM announced a plan to raise $15 billion for its restructuring by laying off thousands of hourly and salaried workers, speeding the closure of truck and SUV plants, suspending its dividend and raising cash through borrowing and the sale of assets.
GM also said it would reduce production by another 300,000 vehicles, and that may prompt another wave of blue-collar early retirement and buyout offers, Young said.
"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," GM Chairman and Chief Executive Rick Wagoner said in a statement.
GM sold 2.29 million vehicles in the second quarter, down 5 percent compared with the previous year. The company said a record 65 percent of those sales were outside North America.
For the first half of the year, Toyota Motor Corp. (TM) outsold GM by 277,532 vehicles. It was only the second time Toyota beat GM in sales for the first six months of a year.
Aug 1, 8:04 AM (ET)
By TOM KRISHER and DEE-ANN DURBIN
DETROIT (AP) - General Motors Corp. (GM) said Friday its losses widened to $15.5 billion in the second quarter as North American sales plummeted and the company faced expenses due to labor unrest and its massive restructuring plan.
The loss of $27.33 per share is the third-worst quarterly loss in the automaker's history. In the same period a year earlier, GM recorded a net profit of $891 million, or $1.56 per share.
Revenue for the April-June period was $38.2 billion, down $8.5 billion from a year earlier.
The company said its loss included $9.1 billion in one-time charges, including $3.3 billion for the buyouts of 19,000 U.S. hourly workers who left at the end of June and $2.8 billion in liabilities related to Delphi Corp. (DPHIQ), its former parts division.
It also included $1.3 billion worth of write-offs because of a decline in the value of GMAC Financial Services' portfolio of trucks and sport utility vehicles. GM owns 49 percent of GMAC, which has suffered big losses when leases end and it tries to sell the now-unpopular vehicles at depressed prices.
GM also took a $197 million charge related to the settlement of a nearly three-month strike at supplier American Axle and Manufacturing Holdings Inc., which shut down more than 30 GM plants. GM agreed to help American Axle fund worker buyouts as part of the settlement.
Without the one-time charges, GM lost $6.3 billion, or $11.21 per share. Twelve analysts surveyed by Thomson Financial predicted a $2.62 per share loss on revenue of $44.57 billion.
GM shares fell 7.4 percent to $10.25 in premarket trading from a close of $11.07 Thursday.
Ray Young, GM's chief financial officer, said the company burned through $3.6 billion in cash during the second quarter, which he attributed largely to reducing the company's inventory by nearly 90,000 vehicles to less than 800,000.
He said GM does not expect a similar reduction in future quarters, so the cash burn should be smaller for the rest of the year.
"In that respect, the negative cash flow in the second quarter is overstated," he said.
Young said GM ended the quarter with $21 billion in cash and $5 billion available through credit lines for total liquidity of $26 billion, which he called a strong position.
The company already has announced plans to generate another $15 billion in liquidity in the next 18 months, he said.
"We're going to get the second quarter behind us and just move ahead," he said.
The $15.5 billion loss is less than half GM's record $38.6 billion loss in the third quarter of last year. That loss was due to a charge for accumulated deferred tax credits. The second-worst loss was $21 billion in the first quarter of 1992.
GM said its revenues outside North America rose by $1.7 billion to $20.8 billion in the quarter, but those gains were more than offset by losses in North America, where high gas prices and the weak economy have wreaked havoc on the auto industry.
North American revenues fell by nearly $10 billion to $19.8 billion for the quarter as sales in the region fell 20 percent. Work stoppages at American Axle and several other facilities in May and June also contributed to the decline, GM said.
On July 15, GM announced a plan to raise $15 billion for its restructuring by laying off thousands of hourly and salaried workers, speeding the closure of truck and SUV plants, suspending its dividend and raising cash through borrowing and the sale of assets.
GM also said it would reduce production by another 300,000 vehicles, and that may prompt another wave of blue-collar early retirement and buyout offers, Young said.
"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," GM Chairman and Chief Executive Rick Wagoner said in a statement.
GM sold 2.29 million vehicles in the second quarter, down 5 percent compared with the previous year. The company said a record 65 percent of those sales were outside North America.
For the first half of the year, Toyota Motor Corp. (TM) outsold GM by 277,532 vehicles. It was only the second time Toyota beat GM in sales for the first six months of a year.
About 42 more months - Jakes Dad
08-01-2008, 10:40 AM
#5
Yeah that was a big factor but it's in the past now, all we have left is the future and this battered and beaten American icon isn't dead yet...I think they've finally got a handle on things and it will be a slow (but sure) return to profitability from here. 
08-01-2008, 01:12 PM
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08-01-2008, 08:30 PM
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08-01-2008, 10:49 PM
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08-02-2008, 12:03 AM
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At least take a pay cut down to just a cool million or two during the 'dark years' so it at least appears like ya care LOL.
08-04-2008, 05:40 PM
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I dealt with their strike back a few months ago. The man that owns American Axel is a very arrogant and selfish person. There are far too many GM suppliers that seem to want to carry a hostile attitude and will create more problems for GM and other auto makers. Thankfully GM helped a great deal in pressing AA to settle there dispute quickly
08-04-2008, 05:48 PM
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Not likely to happen but a factor nevertheless. You ever want a good loss of I.Q. just listen to a press conference that begs that very question. Is fasinating to watch them stick firm to a 56 million salary for CEO compensation.
08-04-2008, 06:00 PM
#17
I dealt with their strike back a few months ago. The man that owns American Axel is a very arrogant and selfish person. There are far too many GM suppliers that seem to want to carry a hostile attitude and will create more problems for GM and other auto makers. Thankfully GM helped a great deal in pressing AA to settle there dispute quickly
08-04-2008, 08:33 PM
#19
Almost EVERYTHING is tied, either directly or indirectly, to the U.S. auto industry in some way.
08-04-2008, 08:54 PM
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Youre talking to an official. Its a common occurence with modern middle class America. its just ignorance towards the facts and finacial absurdities that corporations put on people. Thats not to say we are perfect. There are bad people on our side the same as there are good people on their side. But the workers on the factory floors are among the few in this country left that will drop their tools and demand fair share in the wealth they help create and to not have the rugged pull out from under them when management fails them and intends to dump them and their families overboard.
Last edited by wannabess00; 08-04-2008 at 08:59 PM.
