IHS Global Insight Perspective | |
Significance | GM has reported a fourth-quarter 2008 loss of US$9.6 billion, and a full-year net loss of US$30.8 billion for 2008. The company blames the spread of the North American recession to the global scene as the cause for the dramatic losses. |
Implications | Unlike 2007 and early 2008, GM was not able to count on its global regions to help offset dramatic changes in fortunes at home. Globally, the automaker made over a million fewer vehicles in 2008 than it did in 2007, a stunning contraction. |
Outlook | Whether these results push the U.S. government into providing more aid or in turn pushing GM into bankruptcy remains to be seen, but given that little improvement is expected for 2009, additional government aid will be absolutely required in order to avoid bankruptcy. |
GM Q4 & Full Year 2008 Global Financial Results (US$ bil.) | ||||
Q4 2008 | Q4 2007 | FY 2008 | FY 2007 | |
Global Revenues | 30.8 | 46.8 | 148 | 180 |
Net Income (Loss) | (9.6) | (1.5) | (30.9) | (43.3) |
Cash & Securities | 14.0 | 27.3 | 14.0 | 27.3 |
General Motors (GM) reported its fourth-quarter and full year 2008 results yesterday, coming in with a massive US$30.9-billion loss for the full year due two factors: a shift away from high-margin trucks in the beginning of 2008, and the total collapse of the international auto market in the last half of the year. The amount, while still not as big as the record-setting US$43.3 billion lost in 2007, now brings the total for GM to a US$73 billion total loss over the last four years. For the fourth quarter of 2008, GM lost US$9.6 billion after one-time charges, as compared to a US$1.5 billion loss in the previous year's fourth quarter. Revenues for the quarter fell from US$46.8 billion in the fourth quarter of 2007 to just US$30.8 billion for the fourth quarter of 2008, while revenues for the full year dropped from US$180 billion in 2007 to US$148 billion in 2008. The company's cash burn accelerated unexpectedly in the fourth quarter as well, with the company burning through US$5.2 billion in the quarter, much higher than anticipated. GM CFO Ray Young, who led the conference call to discuss the company's earnings, acknowledged the higher than anticipated burn rate, and chalked it up to greater than expected production cuts in the fourth quarter in the global markets outside North America.
GM Q4 & Full-Year 2008 Reported Earnings by Region (US$, mil.) | ||||
Region | Q4 2008 | Q4 2007 | FY 2008 | FY 2007 |
GMNA | (3,500) | (1,300) | (14,100) | (3,300) |
GME | (956) | (215) | (2,800) | (524) |
GMLAAM | (181) | 424 | 1,300 | 1,300 |
GMAP | (917) | 72 | (800) | 681 |
GMAC* | 7,500 | (724) | 1,900 | (2,300) |
* GMAC earnings have been hit by a December 2008 bond exchange that netted the company US$11.4 billion gains; without the one-time gain, GMAC lost US$4.0 billion in the fourth quarter on operations, largely due to losses in North American automotive finance and continued losses at the Residential Capital mortgage unit. | ||||
Unlike the same period in 2007, in which a dismal performance in the North American market was made up for by gains in the rest of the world, all of GM's regions posted a decline for the fourth quarter of 2008. GM North America (GMNA) led the pack by far, posting a US$3.5-billion net loss, down from a US$1.3-billion loss seen a year ago. For the full year, GMNA lost US$14.1 billion, far and away the most of any region. Most of the loss stemmed from an initially unfavourable mix, when the United States began to shun high margin trucks in favor of small cars, but the floor fell out of all sales in the fourth quarter. The company's European region lost US$956 million for the quarter, down from a US$215-million loss from the fourth quarter of 2007. For all of 2008, GM Europe lost US$2.8 billion, down from a US$524-million loss seen for all of 2007.
The company's Latin America, Africa, and Middle East region (GMLAAM) posted a US$181-million loss for the fourth quarter, a very different result than the US$424-million net profit it posted for the fourth quarter of 2007. For the full year however, a poor fourth-quarter showing was not enough to derail a very strong first half, as GMLAAM turned in an even result for 2008, posting earnings of US$1.3 billion. The most dramatic change came at GM's Asia-Pacific region (GMAP), which swung from a US$72-million profit in the fourth quarter of 2007 to a US$917-million loss for the fourth quarter of 2008. For the full year, GMAP went from a US$681-million profit in 2007 to a US$800-million loss in 2008. And finally, the GMAC financial arm, which was 49% owned by GM until recent changes to its status turned it into a bank holding company, posted an unusual US$7.5-billion net income for the fourth quarter, as opposed to a US$724-million net loss for the same period 2007. This stems from an US$11.4-billion one-time gain from a debt conversion related to that status change; GMAC's actual operating loss was instead US$4-billion, according to the company.
Outlook and Implications
The big question among the media has been: is this further ammunition for GM to make its case before Congress that its in trouble and needs money, or is this the last straw that makes the government push GM into bankruptcy? Frankly, GM does not need any more ammunition to convince the government that it is in trouble; what the government is really looking for is evidence that GM is on the right course. These numbers will not provide that evidence, as they are simply overwhelmingly negative, despite the small nuggets of progress evident in the improved healthcare trust fund (VEBA) costs and the steadily improving structural costs. GM stated that in addition to the 10K filing, that the company's auditors would be filing a "going concern" memorandum, which basically states that the auditors have grave reservations about the company's ability to continue operations without a major influx of cash. This is really no surprise, given that it is exactly what GM has been saying—without government cash, at least US$2 billion by the end of March and roughly US$30 billion in total loans, the company will simply have to declare bankruptcy by the end of March.
The bigger worry is that these numbers will simply be seen as a sign that GM is beyond hope of rescue, and that the going concern notice will be evidence that viability has not truly been attained, if GM needs a continual drip of cash from the government in order to survive. That would be an unfortunate conclusion, for what it does not take into account is the fact that the current economy is, for lack of a better term, broken. Despite nearly a trillion dollars of government money flowing into Wall Street, the world's financial markets are still not operating as they normally would. GM and Chrysler are being criticised for having to go feed from the government trough when in fact the government trough is the only liquidity outlet that is still flowing. The U.S. government, and indeed the governments around the world which have committed to helping their national automakers, have become the only sources of cash to be had, whether for funding ongoing operations or for bankruptcy. Both GM had an operational turnaround plan in place at this time last year, and while the company was struggling from a loss of revenue due to a shift away from trucks, it was still making money abroad and had a good shot at reversing its fortunes through new product. After the mortgage market crisis took hold and ruined the financial industry however, GM was in the same boat as a lot of other companies—unable to find financing and increasingly watching all of the revenue streams dry up. GM's latest results neither help nor hurt the company's case with Washington, quite frankly; given the state of the supply base, the industry is likely to come to a crisis well before GM's deadline of 31 March as suppliers begin closing their doors next month.