General Motors has announced a 2007 calendar-year adjusted net loss, excluding special items, of $US23m, or $.04 per share. Including special items, the loss was $38.7bn or $68.45 a share compared to a reported loss of $2bn, or $3.50 per share in 2006 and adjusted net income of $2.2 bn, or $3.84 per share in 2006, as significantly improved automotive performance was offset by large losses at GMAC.
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GM in a statement on Tuesday said the loss was almost entirely attributable to a non-cash $38.3bn special tax charge in the third quarter.
GM Europe (GME) earnings before tax were $55m (reported loss of $524m), down significantly from earnings before tax of $357m in 2006, excluding special items (reported loss of $297m).
For the fourth quarter GME posted an adjusted loss before tax of $215m (reported loss of $445m) versus an adjusted loss before tax of $12m in the year ago period (reported loss of $154m). The decline in calendar year and fourth quarter earnings were attributable primarily to a markedly softer German market as well as unfavourable foreign exchange rates.
GME sales were up 8.9% in 2007 to a record 2.2m units.
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By GlobalDataGM’s core automotive business generated record revenue of $178bn in 2007, a $7bn improvement over 2006, aided by “explosive” growth in emerging markets and favourable foreign exchange against a weaker U.S. dollar. GM generated $181bn of total revenue in 2007, compared with $206bn in 2006. The decrease was due to the non-consolidation of GMAC revenue, following GM’s sale of 51% of GMAC in November of 2006.
For the fourth quarter, GM posted adjusted net income of $46m or $.08 per share, compared to adjusted net income of $180m, or $.32 per diluted share in 2006.
Including special items, the company reported a net loss of $722m, or $1.28 per share in Q4 2007, compared to net income of $950m, or $1.68 per a year before.
Analysts had expected a $0.54-0.64 loss in the quarter, results for which reflected a $1.6bn tax benefit.
Special charges recorded in the fourth quarter totaled $768m, including an $805m tax adjustment related to the gain on the sale of Allison Transmission, which was offset by $622m in charges associated with GM’s support of Delphi’s restructuring, $552m for pension benefits provided to Delphi employees and retirees and $290m in other restructuring-related charges.
GM reported revenue of $47.1bn in the fourth quarter versus $50.8bn a year ago, with the decline mostly accounted for by the exclusion of GMAC revenue from 1 December, 2006.
Revenue from automotive operations totalled $46.7bn in the quarter, a $3bn increase over the prior year and a new quarterly revenue record, reflecting strong growth in Latin America, Asia Pacific and eastern Europe.
“We’re pleased with the positive improvement trend in our automotive results, especially given the challenging conditions in important markets like the US and Germany, but we have more work to do to achieve acceptable profitability and positive cash flow,” GM chairman and CEO Rick Wagoner said.
GM’s global automotive operations posted adjusted earnings before tax of $553m in 2007 (reported loss of $1.9bn), compared to an adjusted loss before tax of $339m in 2006 (reported loss of $6.1bn).
In the fourth quarter 2007, automotive had an adjusted loss before tax of $803m (reported loss of $1.2bn), compared to adjusted earnings before tax of $8m in the year-ago quarter (reported loss of $111m).
Worldwide vehicle sales increased 3%, or 277,000 units, to 9.4m vehicles in 2007, marking the second best year in units sold in the company’s 100-year history. For the third consecutive year, a majority of the company’s sales – almost 60% – were outside the US. Record sales were made in key growth markets throughout eastern Europe, Latin America and Asia Pacific.
GM North America (GMNA) posted an adjusted loss before tax of $1.5bn for 2007 (reported loss of $3.3bn), compared to a loss before tax of $1.6bn in the year-ago period, excluding special items (reported loss of $7.5bn). GMNA had an adjusted loss before tax of $1.1bn in the fourth quarter (reported loss of $1.3bn), compared to an adjusted loss before tax of $129m in the fourth quarter 2006 (reported loss of $30m).
Losses for the year were largely attributable to a softer US market, and the reduction of dealer inventory by approximately 150,000 units and lower sales of daily rental vehicles by about 110,000 vehicles in the US.
GMNA also incurred higher engineering costs to support continuing product and technology development.
However, GM reached its structural cost reduction target of $9bn in North America in 2007 versus 2005, a key part of reducing global automotive structural cost as a percentage of revenue from 34% in 2005 to 29.7% in 2007.
GM expects to derive additional structural cost savings of $4bn to $5bn by 2010 in the US as it fully implements the 2007 GM-UAW contract, including the independent healthcare trust. These savings will help the automaker reach its goal to reduce structural cost to 25% of revenue by 2010, and further to 23% of revenue by 2012.
With a 19% increase in sales to a record 1.2m units in 2007, GM Latin America, Africa, Middle East (GMLAAM) achieved a record $1.3bn in adjusted earnings before tax for the year (reported income of $1.3bn), up 140% over 2006 adjusted earnings of $561m (reported income of $518m).
The region also set a sales record in the fourth quarter with 341,000 units, up 18% year over year, generating $424m in adjusted earnings before tax (reported income of $424m), up from $76m in the fourth quarter of 2006 (reported income of $76m). Robust sales resulted in record revenue of $18.9bn for the calendar year and $6bn in the fourth quarter.
The year-over-year gain in GMLAAM pre-tax earnings was largely driven by strong volume growth, which outpaced industry growth.
Chevrolet sales in the region were up 23% for the calendar year, and accounted for 90% of units sold in GMLAAM in 2007.
GM Asia Pacific (GMAP) posted reduced adjusted earnings before tax of $744m in 2007 (reported income of $681m) compared to $403m (reported income of $1.2bn) for 2006.
Adjusted earnings before tax for the fourth quarter were $72m (reported income also $72m), compared to $105m in fourth quarter of 2006 (reported income of $29m). The calendar year earnings gain was driven by favourable volume and mix, increased equity income from GM’s China joint ventures and improved operating performance at Holden. The results were partially offset by increased structural cost increases associated with continued investment in high growth markets and lower Suzuki equity income resulting from the sale of a majority of GM’s equity in 2006.
GMAP nonetheless enjoyed continued strong performance in China, where domestic sales grew 18.5% in 2007 and GM, with its local partners, became the first global automotive manufacturer to sell more than 1m vehicles. In addition, GM sales in India rose 74%, and export sales of the GM Daewoo products built in Korea increased by 30% to 870,000 vehicles.
GMAC
On a standalone basis, GMAC Financial Services reported a net loss of $2.3bn in 2007, compared with net income of $2.1bn in 2006. Profitable results in the global automotive and insurance businesses were more than offset by the significant loss at Residential Capital (ResCap). In the fourth quarter, GMAC reported a net loss of $724m, compared to net income of $1.0bn in the fourth quarter of 2006.
The effect on ResCap of the continued disruption in the mortgage, housing and capital markets was the primary reason for the adverse performance.
GM reported a $1.1bn net loss attributable to GMAC, as a result of its 49% equity interest and preferred dividends received for the full year 2007, and a $394m reported net loss for the fourth quarter. GMAC currently expects to be profitable in 2008, however.
Outlook
Despite the uncertainty in the US market, GM said it expects improved pre-tax automotive earnings in 2008 versus 2007, largely driven by continued strong performance in emerging markets.
It added it remained confident in the 2010-2011 opportunities to further improve earnings and cash flow due to the potential impact of the GM-UAW labour agreement which is expected to provide significantly greater flexibility and yield additional savings of $4bn to $5bn.
GM estimated that if the US market volume returns to trend levels in 2009 and beyond, which would be an increase of 1m units, the change would generate additional pre-tax income in the range of approximately $1bn to $1.5bn annually.
GM also expects to reduce a substantial portion of the cost premiums it has historically paid to Delphi for systems and components over the next three to five years though these will be offset by various labour and transitional subsidies of $300-400m per year under Delphi’s reorganisation. However, GM expects to achieve annual net savings over the mid-term of approximately $500m.
