GM Reports Progress, But Loss Of $1.2 Billion
Automaker General Motors announced Monday it lost $1.2 billion since emerging from bankruptcy protection. The company also said it will begin repaying $6.7 billion in U.S. government loans with a $1.2 billion payment in December.
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General Motors lost $1.2 billion in the third quarter of this year. If that sounds bad, its all relative. This is GMs first financial progress report since emerging from bankruptcy.
And as Michigan Radios Tracy Samilton reports, some analysts are saying it couldve been much worse.
TRACY SAMILTON: Look, GM is making some cars that people want. Take Margaret Fazini(ph), for instance. The single mother is a brand new GM customer. Now, she straps her toddler into the safety seat in her new Chevy Equinox. She says she likes the gas mileage and how roomy it is.
Ms. MARGARET FAZINI: We looked at a couple different types of vehicles and this was one that we actually liked the most because the backseat moves back and forth to give you more room in the trunk.
SAMILTON: Chevy Equinox sales are good, but the big picture for GM is considerably murkier. The automaker lost $1.2 billion since it emerged from bankruptcy on July 10th. Now, a year earlier GM lost $2.5 billion. The bankruptcy clearly damaged GM, but not as much as some analysts worst-case scenario. Still, CEO Fritz Henderson is quick to call the loss not satisfactory.
Mr. FRITZ HENDERSON (CEO, General Motors): As I look at it, some progress, some signs of progress, some signs of stability. We have stabilized share in some important markets around the globe, including in the U.S.
SAMILTON: On the plus side, GMs third quarter revenues were up 21 percent from the dismal second quarter. The company is making money in China. But GM has received a staggering amount of government aid. The amount it has committed to pay back is a small fraction of the amount it owes taxpayers. The Treasury Department propped up the company by buying $50 billion of preferred shares in the company. Its an open question whether that stock will ever sell at a high enough price to pay taxpayers back.
But some analysts think just becoming profitable again will be a big enough accomplishment for a company that lost more than three percent of its global market share in the past year. Erich Merkle is president of Autoconomy.com, an auto industry consulting group. Hed be happy to see GM solve its longstanding problem with inconsistent quality from car to car.
Mr. ERICH MERKLE (President, Autoconomy.com): In the past the company has been so large and has had so many divisions that they just cant touch all those models and keep them all competitive at the same time. A smaller GM in many ways is much better.
SAMILTON: Merkle says GM can now focus on making the vehicles that people want. But contrary to conventional wisdom, that doesnt necessarily mean more small cars. Chevy will launch two new small cars next year: the Chevy Cruze and the all-electric Volt. But Americans still like those big, roomy crossovers.
Mr. MERKLE: And in that mix is actually the pick-up truck. But as housing, you know, comes up off the bottom and improves in 2010 and 2011, those pick-up truck sales will start to improve as well.
SAMILTON: GM said today it will start to pay back the $6.7 billion owing the Treasury in December, five years ahead of schedule. GM officials say the next progress report will show a bigger loss, partly due to the expedited payment. After that, the company expects slow month-to-month improvement. And thats just what analysts say to expect, a slow rise in auto sales that eventually lifts GM and other carmakers to a true recovery.
For NPR News, Im Tracy Samilton in Ann Arbor.
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GM Says $1.2 Billion Quarterly Loss Shows Progress
GM said its improved performance was fueled by new products including the Chevrolet Camaro muscle car.
GM said its improved performance was fueled by new products including the Chevrolet Camaro muscle car.
General Motors Co. says it lost $1.2 billion from the time it left bankruptcy protection through Sept. 30, far better than it has reported in previous quarters and a sign that the auto giant is starting to turn around its business.
The company also says it will begin repaying $6.7 billion in U.S. government loans with a $1.2 billion payment in December. It could pay off the full amount by 2011, four years ahead of schedule.
GM said its improved performance was fueled by new products including the Chevrolet Camaro muscle car, and the Chevrolet Equinox and GMC Terrain midsize crossover vehicles. The company's top sellers through October were the Chevrolet Silverado pickup truck and Impala full-size car.
Also, GM's global presence helped the company, particularly in China, where its sales of 478,000 in the third quarter increased 6 percent over the second quarter.
"We have significantly more work to do, but today's results provide evidence of the solid foundation we are building for the new GM," CEO Fritz Henderson said in a statement.
The company cautioned that the earnings numbers mean little because they don't comply with U.S. accounting standards and cover only the part of the quarter after GM left Chapter 11 bankruptcy protection on July 10.
Even more unusual is the $79.4 billion profit the troubled automaker is reporting for the first nine days of the third quarter, when it remained under bankruptcy court protection but was able to scrap colossal amounts of debt and other obligations from its balance sheet.
"Direct comparisons are not necessarily applicable," said Chief Financial Officer Ray Young. "You can make some judgments in terms of trends," Young said.
Nonetheless, GM maintains the numbers show a company making progress, riding dramatically reduced structural costs to a far better performance than the $6 billion loss GM reported in the first quarter, the last full quarter for which its numbers met accounting standards.
GM took in $3.3 billion more cash than it spent for the third quarter, far better than the $10 billion the company burned through during the first quarter.
Its third-quarter revenue totaled $26.4 billion, also an improvement over the first quarter when it saw revenue drop nearly 50 percent from the same period in 2008 to $22.4 billion. Revenue was aided by sales boosts in July and August from the U.S. government's Cash for Clunkers rebates.
GM said its global market share was 11.9 percent in the third quarter, up three percentage points from the first half of the year. The U.S. share stayed flat for the quarter at 19.5 percent.
Many customers stayed away from GM showrooms in the first and second quarters as it headed into bankruptcy protection, fearing the company wouldn't be around to honor warranties and service their vehicles.
Young said GM accountants are in the process of cleaning up the new company's books, revaluing assets and liabilities and changes to pension and health care costs that came from bankruptcy and a new contract with the United Auto Workers union.
GM expects to meet accounting standards when it reports full-year results for fiscal 2009, but those figures probably won't be released until March as accountants go through the complex process of figuring out just how much the company is now worth.
But Young said the third-quarter results still are useful to management in spotting trends and measuring whether the company is making progress.
GM lost $78 billion from 2006 through the first quarter of this year. The gargantuan losses and debt eventually choked the company to the point where it could no longer operate without government help.
GM entered bankruptcy protection with roughly $94.7 billion in debt. It emerged with $17 billion, including the $6.7 billion owed to the U.S. government. The government has given GM a total of $52 billion, including $45.3 billion in exchange for a 61 percent equity stake in the company.
The automaker also says it will begin repaying $1.4 billion it owes to the Canadian and Ontario governments in December. The loan repayments will come from escrow accounts set up for the company by the U.S. Treasury Department and Canadian governments. GM also has paid $700 million on a $1.3 billion loan from the German government to keep GM's Opel division in operation. The balance will be repaid this month, GM said.
Henderson said a "reasonably large" part of the Opel repayment came from U.S. tax dollars, while some came from Opel funds, but Henderson said GM is a global company and needs to have flexibility to use the money to run global operations.
The CEO disagreed with a report by the General Accounting Office saying that it was doubtful the U.S. government would recoup all of the money given to GM. He said full repayment is a function of stock value, and he intends to make the stock valuable by managing the company well.
"It is my mission to disprove the GAO," Henderson said.
GM said it paid $250 million in interest for the third quarter, far lower than in previous quarters when the company was weighed down by its huge debt.
Although the company reported positive cash flow for the third quarter, it does not expect that to continue into the fourth quarter because of the government loan repayments and a $2.8 billion payment to help Delphi Corp., its former parts division, out of bankruptcy protection.
GM has said it plans to sell stock to the public late next year so taxpayers can recoup at least part of their remaining investment, though GM Chairman Ed Whitacre said last week that the timing of any GM IPO remains uncertain and depends on when the company returns to profitability.
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