US [updated 8 Nov]: General Motors Q3 net loss $2.5bn; liquidity worries, Chrysler off
General Motors has reported a net loss of US$2.5bn or $4.45 per share for the third quarter, including special items, signalled a liquidity crisis and said talks with Chrysler are off as the incoming president insisted he would help the beleagured industry. Announcing the results, GM CEO Rick Wagoner confirmed talks had taken place with Chrysler but said GM had eventually decided to address its liquidity problems as its top priority.
Chrysler declined to discuss the GM CEO's comments directly but said in a statement: "Returning Chrysler to profitability continues to be the key focus of the management team. As an independent company, we will continue to explore multiple strategic alliances or partnerships as we investigate growth opportunities around the world that would aid in our return to profitability."
GM's Q3 08 loss compared with a net loss from continuing operations of $42.5bn or $75.12 per share in the third quarter of 2007, which included a non-cash charge of $38.3bn to establish a valuation allowance against some of the company's net deferred tax assets.
On an adjusted basis, GM posted a net loss of $4.2bn or $7.35 per share, compared with a net loss from continuing operations of $1.6bn or $2.86 per share in the same period last year.
Revenue for the third quarter was $37.9bn, down from $43.7bn, reflecting what GM called "dramatic sales declines across the industry driven by unstable market conditions, instability in the credit markets and dramatic retraction in consumer demand, especially in North America and Europe".
"During the third quarter the turmoil in the global credit markets resulted in the worst financial crisis in more than 70 years. The upheaval has had a dramatic impact on the auto business in particular, especially in the US and western Europe, the automaker said.
GM said improving its liquidity position remains a top priority.
"In response to deteriorating market conditions, GM announced today that in addition to the $15bn in liquidity initiatives it outlined in July 2008, it has identified $5bn of additional liquidity actions.
"Cumulatively, GM has announced actions aimed at improving liquidity by $20bn through 2009. To date, $10bn in internal operating actions have either already been completed or are on track for full execution by the end of 2009.
"Even if GM implements the planned operating actions that are substantially within its control, GM's estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business.
"Looking into the first two quarters of 2009, even with its planned actions, the company's estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programmes, or some combination of the foregoing.
"The success of GM's plans necessarily depends on other factors, including global economic conditions and the level of automotive sales, particularly in the United States and western Europe".
GM said tight credit, rising unemployment, declining income, falling stock markets, and continuing deterioration in the housing market in the US resulted in an abrupt halt in consumer spending, with most consumers exiting the vehicle market.
"Many of those still intending to purchase vehicles were denied financing, or found the cost of financing prohibitive," it said.
"The third quarter was especially challenging for the auto industry. Consumer spending, which represents close to 70% of the US economy, fell dramatically, and the abrupt closure of credit markets created a downward spiral in vehicle sales," said chairman and CEO Rick Wagoner.
"The US government's actions to help stabilise the credit markets and eventually ease the credit crunch are an essential first step to the economy's and the auto industry's recovery, but further strong action is required."
Just a few hours later, president-elect Barack Obama, in his first post-election press conference signaled his incoming administration's intentions to help the auto industry, calling it "the backbone of American manufacturing".
"I have made it a high priority for my transition team to work on additional policy options to help the auto industry adjust, weather the financial crisis and succeed in producing fuel-efficient cars here in the United States of America," he said, though industry observers suggested that might come to late to help GM - he doesn't take up office until 20 January.
Industry observers suggested a GM collapse could affect up to 2.5m jobs in a domino-like effect as partsmakers, too, are in precarious positions. And there have been suggestions GM's complex structure could preclude a Chapter 11 'protection' filing, allowing it to reorganise like several US airlines and partsmakers recently, and it would be forced instead to file iunder Chapter 7 - and that means liquidation.
Like Ford, which announced Q3 results earlier today, GM booked a gain of $4.9bn resulting from the UAW healthcare settlement agreement becoming effective. The adjusted automotive loss of $2.8bn ($947m reported loss) in Q3 2008 compared with adjusted automotive earnings from continuing operations of $98m a year ago (reported net loss of $1.6bn).
The results reflected losses in GM North America (GMNA) driven largely by the US industry volume decline of nearly 20%, and shifts in product mix. In addition, Europe - long a shining jewel in the GM empire - saw rapid market contraction, leading to sharply lower sales volume in the third quarter. GM Asia Pacific (GMAP) results were down due to commodity hedging charges and moderating demand in key markets including China, Australia and India.
But these losses were partially offset by very strong results in the GM Latin America, Africa and Middle East (GMLAAM) region though there were ominous signs this week that Latin America is starting to slow.
GM also booked $1.5bn of expenses related to commodity and foreign exchange hedging.
It sold 2.1m vehicles worldwide in the third quarter, down 11% year on year. Sales in GMNA were down 19% compared to third quarter 2007. Global market share was 13%, down 0.7 points, due largely to weakness in North America and western Europe.
GMNA revenue and earnings in the third quarter reflected dramatic industry deterioration and a sharp fall in consumer spending driven by the weak US economy and a very harsh credit environment, the automaker said.
Revenue slipped $4.1bn to $22.5bn and the reported pretax loss was $395bn, down from a $1.8m loss a year ago.
Earnings were impacted by lower volumes, rapid shifts among U.S. consumers away from trucks and SUVs toward smaller cars, and unfavorable mark-to-market adjustments on commodity hedging.
GME revenue was down 15% to $7.5bn in the third quarter amid industry-wide volume declines ranging from 10 to 35% in certain major markets including the UK, Spain and Italy. Overall GME sales volume was down 12.3% year over year, while up 10% in Eastern Europe. The $1bn reported loss was down from the $398m loss a year ago.
Results at GMAP were impacted primarily by unfavourable model mix and negative pricing. Revenue slipped $0.5bn to $4.8bn and reported loss was $6m versus a $186m profit last year.
Industry sales for the region were down by 134,000 units or 2.7% in the third quarter. Despite the slowdown, GM reported a 2.6% increase in sales volume, and modest gain in market share. Markets in the GMAP region are expected to remain soft through the fourth quarter, with further slow downs anticipated in Australia, China, South Korea and India as the effects of the faltering US economy and tightening credit conditions expand to other regions around the world.
GMLAAM saw double-digit revenue growth, up 15% to $5.7bn, and earnings, up 37% to $517m, in the third quarter, fueled by strong demand for Chevrolet and Cadillac products. GMLAAM sales volume was up more than 3% compared to the same period last year. Sales were especially strong in key South America markets, including Brazil, Chile, Ecuador and Peru, each setting all-time GM quarterly sales records. The region is on track for another year of record sales, although the effects of the global economic slowdown on credit availability and consumer behaviour are likely to result in some moderation of demand in the fourth quarter. GM is already temporarily closing factories in Brazil and offering worker buyouts.
On a standalone basis, GMAC reported a net loss of $2.5bn for the third quarter 2008, down $900m from a year ago. GM reported an adjusted loss of $1.2bn for the quarter attributable to GMAC, as a result of its 49% equity interest.
Cash, marketable securities, and readily-available assets of the Voluntary Employees' Beneficiary Association (VEBA) trust totalled $16.2bn on 30 September, 2008, down from $21.0bn on 30 June.
GM said the liquidity plunge reflected negative adjusted operating cash flow of $6.9bn in the third quarter 2008, driven by the industry-wide slowdown in vehicle demand and compounding credit crisis, especially in North America and Europe.
During the quarter, GM drew the remaining $3.5bn of its secured revolving credit facility and made $1.2bn in payments to Delphi as required by agreements between the companies as part of Delphi's bankruptcy proceedings.
GM expects adjusted operating cash flow in the fourth quarter to be much improved versus the third quarter, and more consistent with the first half of the year. Improvements in fourth quarter cash flow are largely driven by anticipated improvements in working capital in North America relating to sales allowances, and lower fourth quarter finished vehicle inventory in Europe.