G.M.’s $4.3 Billion Loss Masks Progress
The first detailed financial report from General Motors since its bankruptcy showed a company that has largely stanched the hemorrhaging in its day-to-day business, but is still cleaning up problems left over from its collapse last year.
G.M. said Wednesday that it had positive cash flow of $1 billion in the six months after it emerged from bankruptcy protection last July, but that it lost $4.3 billion in that period, mostly because of the cost of settling with the United Auto Workers union over retiree health benefits, one of the burdens that helped bring the company to its knees.
The automaker said that with those matters behind it and the economy improving, it could make a profit in 2010, echoing previous predictions. Officials said the company made progress toward that goal in the first quarter, without being specific.
“It would be a really impressive achievement if they were able to make a profit,” said Rebecca Lindland, an analyst with the research firm IHS Global Insight. “They’ve been able to do an awful lot, and all of those things should lead to a profitable picture.”
The bankruptcy cleared $83 billion in liabilities from G.M.’s balance sheet, the company said. Wiping out that debt already has saved G.M. billions of dollars in interest; it paid $28.6 million a day in interest in the months before bankruptcy, but those payments dropped 86 percent, to $4 million a day, after bankruptcy.
With those debts gone, G.M. said gross margins on vehicle sales edged into positive territory, at 1.9 percent, compared with negative 18.5 percent in early 2009.
Cash-flow was a positive $1 billion from July 10, when G.M. emerged from bankruptcy by selling its desirable assets to a new company, to Dec. 31. The old G.M., which remained in bankruptcy protection as it liquidated closed plants and other discarded assets, exhausted $13.1 billion in cash in the second half of 2008.
Excluding one-time charges, the successor company lost about $600 million in the fourth quarter, G.M.’s chief financial officer, Christopher P. Liddell, said. G.M. reported an operating loss of $5.9 billion in the same period a year earlier.
“We don’t need to make that much improvement to get to profitability,” Mr. Liddell, who came to G.M. from Microsoft this year, told analysts and reporters on a conference call. “It’s getting close to break-even if you get rid of those one-off items that happened in the fourth quarter.”
The results comprise G.M.’s first official financial report since bankruptcy. Under “fresh start” accounting principles, which reset valuations of assets and liabilities, the results were not directly comparable to those from previous quarters.
The report listed $36.2 billion in cash reserves and marketable securities at year’s end, including $12.5 billion in government loan money being held in an escrow account. G.M. had just $14.2 billion on hand a year earlier.
G.M. reiterated a commitment to pay off the balance of its debt to the American and Canadian governments by June. It made payments totaling $2.8 billion, including interest, in December and March toward an initial balance of $8.3 billion.
Most of the $50 billion G.M. borrowed was converted to a 61 percent equity stake held by the Treasury Department. The only way the Treasury can recover that debt is through the sale of its stock. Mr. Liddell said a public stock offering would occur “as soon as it makes sense,” but only “when the markets and the company are ready.”
Narayanan Jayaraman, a professor of finance at Georgia Tech’s College of Management, said he expected a G.M. public offering no sooner than 2011, “once they demonstrate two or three quarters of profitability.”
Mr. Liddell said G.M. could be profitable even without a significant improvement in the new-vehicle market and broader economy. Professor Jayaraman agreed, but added that if industry sales did pick up, “they can be a cash-generating machine.”
Chrysler, the other Detroit automaker to go through bankruptcy protection last year, plans to provide a financial update later this month. Its chief executive, Sergio Marchionne, forecast last week that Chrysler would break even this year.
Industry observers have been more skeptical of Chrysler’s prospects than G.M.’s, largely because Chrysler has fewer new vehicles in showrooms and or on their way.
“Between G.M. and Chrysler, if I had to place a bet, I would place it heavily on G.M.,” Professor Jayaraman said. “They seem to be doing the right things. They have some headwinds, so help from the economy would be good, but even in the absence of that they can do well.”
G.M. said it lost $4 billion in the fourth quarter, before interest and taxes, of which $3.4 billion was attributable to its troubled North American region. Its net loss for the fourth quarter was $3.4 billion, compared with $900 million from July 10 through Sept. 30.
Revenue was $32.3 billion in the fourth quarter and $57.5 billion from July 10 to Dec. 31. The old G.M. reported revenue of $47.1 million from Jan. 1 to July 9 and $149 million in all of 2008.
G.M.’s new accounting valued its assets at $142 billion. Plants, property and equipment were assigned a value of $19 billion, a reduction of $18 billion. G.M. also listed $30 billion in good will, $16 billion of intangible assets such as technology and brands, and $8 billion in equity and cost-based investments.
G.M. has not earned a full-year profit since 2004. It lost $88 billion from 2005 to its bankruptcy filing June 1. Its 2010 first-quarter results will be released in May.
