The GM Bailout Revisited
By Charles Krome
Let me deal with one thing before I even start: I was definitely in with the bailout crowd back during the depths of the global economic meltdown, and I remain a firm believer in government providing the occasional boost to U.S. industry. But that being said, I’m starting to get a bad feeling about how things are playing out at General Motors.
Consider: The General recently teased its third-quarter financial results—the final numbers will be released on Wednesday—and the early line is that the company expects to see a “net income attributable to common stockholders” of about $2 billion. That’s a swing of more than $3 billion as compared to GM’s results during the same time last year, although the automaker’s 2009 third-quarter numbers were more hazy and haphazard than usual, due to the whole “going through bankruptcy” business.
Regardless, last quarter’s multi-billion-dollar net income is creating some serious pre-IPO buzz for General Motors, with many people pointing to the numbers as evidence that GM has turned itself around. Yet I can’t help but think those same people are overlooking one very serious problem here. GM may have raked in big profits for the third quarter, but it didn’t do so by selling more vehicles this year than it did in the past.
For example, here in the U.S., as a result of the Cash for Clunkers effect, GM sold over 60,000 more vehicles in August of 2009 than it did in August of 2010, with nearly 40,000 of extra those units coming from HUMMER, Saturn, Saab and Pontiac. When you factor this into the equation, the bottom line is that General Motors moved 34,572 fewer vehicles in July-September of 2010 than during the same time in 2009. The tally: 558,023 units this year and 592,595 the last. In fact, even now, looking at the year through October, General Motors has only increased its overall volume by 5.7 percent. Ford’s year-to-date volume, by way of comparison, is up 21 percent in the first 10 months of the year, with the industry up 10.4 percent in the same period.
I know that the $2 billion in earnings reflects a nice sales bump in China, as well as higher transaction prices here in the U.S., but there’s no way this kind of stuff adds up to a $3 billion year-over-year improvement in net income—and there’s really not much else in the way of product-oriented changes on which one can pin the income difference.
So somebody please tell me this doesn’t mean GM is earning all of its money solely by sticking it to U.S. taxpayers and its global workforce.