…which is not actually as bad as it sounds
by David Surace
04.30.2008
First the bad news: GM reported a first-quarter loss of $3.25 billion this morning, thanks in no small part to the UAW strike at American Axle & Manufacturing, Delphi’s bankruptcy, a big chunk of interest spent on money-losing GMAC, and plummeting automotive sales thanks to high gas prices, the hardest-hit being light truck and SUV sales.
Now before I go on, I’d like to put that in perspective. If I lost $3.25 billion in the first three months of this year, you would find charred pieces of me in several different states. Or rather, you wouldn’t find me, because my wife is very clever at hiding things.
But, because we’re talking about GM, there is still a silver lining.
The good news: most of that loss stems from “one-time items”, like the $1.45bn change in GMAC’s value before its spin-off, and another $731 million reflecting an increase in GM’s liability of Delphi’s bankruptcy, and the two-month strike at American Axle, which cost $800 million.
With all that aside however, the actual operating loss is pegged at around $350 million, or 62 cents a share. Now, Wall Street analysts had expected an operating loss of more like $1.50-$1.60 a share, plus all the one-time baggage to go with it.
A big reason for the discrepancy between expected losses and actual losses is that GM did far better than expected outside the US. Sales soared (a 20% increase overall) in places that aren’t affected as much by our not-really-a-recession. In fact, the Asia-Pacific and Latin America-Africa-Middle East regions had actually doubled their earnings.
And in response to the American Axle strike (which cost some 100,000 vehicles) and depressed US and Europe sales on soaring oil prices and a slowing economy, GM announced it will cut production on its light-duty trucks and SUVs, and also lowered its sales expectations for the year, too.
So in early trading this morning, shareholders applauded, and GM gained 4.3%. All’s well that ends well? We’ll see.
Pulling out the large one-time charges, GM actually beat the analysts’ earnings expectations for the quarter, so not as awful as it seems. It’s never good to lose money, but it not as bad as losing more money than you were supposed to.
2008 is going to be an ugly year for the General.