GM has posted a first quarter loss of USD3.25bn on the back of adverse developments at GMAC, several large one-off charges and a decline in North American revenues due to strike action at American Axle.
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The reported results for the first quarter of 2008 include a number of unfavourable special items totalling some USD2.9bn.
The charges include USD1.45bn to record a non-cash ‘partial impairment of GM’s equity investment in GMAC’ (the financial company still part-owned by GM – it retained a 49% stake after selling 51% to Cerberus in 2006). Based on current market pricing, GM concluded that the estimated fair value of the common and preferred equity interests it holds in GMAC were approximately USD1.45bn less than GM’s carrying value.
GMAC lost USD589m in the first quarter of this year and GM was liable for USD288m of that – which added to GM’s adjusted loss, along with USD800m due to the impact of the American Axle supply disruption which took 100,000 sales out, GM says.
Rising losses at GMAC reflect the problems being encountered by the financial firm’s Residential Capital mortgage unit and the ongoing effects of the credit crunch.
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By GlobalDataGM also took a non-cash charge of USD731m to increase its liability for estimated net costs associated with GM’s support of Delphi’s bankruptcy and restructuring efforts. This charge primarily results from updated estimates reflecting uncertainty around the nature, value and timing of GM’s recoveries.
In addition, GM recorded USD394m in non-cash tax-related valuation allowances related to deferred tax assets in Europe, and USD$324 million in charges related to previously-announced restructuring actions in North America and Europe.
There was some good news though. Adjusted automotive earnings before taxes were USD392m, up USD161m on last year despite the significant impact of the American Axle strike and weak US auto industry. GM said that positive result was driven by strong combined earnings before taxes of USD1bn in GM Latin America, Africa and Middle East (GMLAAM), GM Asia Pacific (GMAP) and GM Europe (GME), which more than offset a loss at GMNA.
Excluding special items, GM posted an adjusted net loss of USD350m reflecting losses at GMAC and tax expenses. That compares to an adjusted net loss from continuing operations of USD10m in the first quarter of 2007.
GM sold 2.25 million vehicles in the first quarter of 2008, down less than one percent from 2.27 million units in the first quarter 2007, with a record 64 percent of sales outside of the United States. Unit sales outside GMNA were up 8 percent compared with the same quarter last year. Robust sales in the first quarter in GM’s GMLAAM and GMAP regions, and improved sales in the GME region helped offset a 10 percent unit decline in GMNA.
GMNA revenue for the first quarter 2008 was USD24.5bn compared to USD28.1bn in the year-ago period. The decline in GMNA first quarter revenue was significantly impacted by the lost production due to the American Axle strike. Other factors include a softer US market and planned actions to maintain lean inventories. With the industry shift toward more fuel-efficient vehicles, GM’s most recently launched passenger cars and crossovers, including the Cadillac CTS, GMC Acadia, Buick Enclave and the all-new Chevrolet Malibu continue to perform well in the marketplace, GM maintains.
GM said the decline in GMNA first quarter earnings was more than accounted for by the loss of 100,000 production units resulting from the American Axle strike, which had an estimated impact to earnings of USD800m. Other factors included lower volumes resulting from a softer U.S. market and lower market share, as well as shifts in product mix. Partially offsetting the declines were favourable material and structural cost performance and commodity hedging gains and foreign exchange.
“We continue to leverage our global product portfolio to take advantage of tremendous growth in key emerging markets, while at the same time taking the appropriate actions to deal with the challenging economic conditions in the U.S.,” said GM Chairman and Chief Executive Officer, Rick Wagoner.
In light of the current state of the U.S. economy and automotive industry, GM has revised its 2008 US total industry seasonally adjusted annual rate (SAAR) outlook to the mid to high 15 million unit range, down from the low 16 million unit range. As a result of the anticipated softer automotive industry, GM announced earlier this week that it would eliminate a shift of production at four assembly plants: Janesville, WI; Pontiac and Flint, MI and Oshawa, Ont.
“We remain focused on taking the actions necessary to assure GM’s long- term success – product excellence, leadership in advanced propulsion technology, growth in emerging markets, and accelerating the restructuring of our U.S. business to achieve sustainable profitability,” said Wagoner.
