General Motors Company Posts $1.2 Billion Loss

The full costs of health care have not yet been accounted for, or the value of the stock.

General Motors Company (GM) released today preliminary results for its first 83 days of operation, providing an initial look at its still tenuous financial health.

GM’s earnings before taxes for the July 10-Sept. 30 period resulted in a loss of $1.0 billion since it began operations as a reorganized company on July 10.

GM recorded special items for the same period of $505 million, attributed primarily to dealer restructuring, attrition-related charges and Delphi.

For the July 10-Sept. 30 period GM posted a loss after taxes of $1.2 billion.

The results did not conform to Generally Accepted Accounting Procedures (GAAP), which are required of publicly traded companies in the U.S. , since GM is privately held, largely by taxpayers.

In spite of its restructuring, the company is not yet at a break even point, according to Fritz Henderson, CEO, primarily because of costs, including the enormous cost of  health care in the U.S.

Henderson characterized the results as “not satisfactory.”

Dollars and Sense!

The revenue, cost and cash flow numbers are indicators of GM’s actual health. These and subsequent results are needed to gauge the effectiveness of the reorganization imposed on it by the U.S. Treasury Department, and to assess the likelihood of how much U.S. and Canadian taxpayers will be paid back of  the $50 billion in loans advanced via their ownership stake of 61% of the company.

GM’s business results and their trend, as well as the size of the global markets are all key to the pricing –  and crucially, the acceptance –  of an impending public stock offering of GM Company, which could come as soon as next year. It is through the eventual sale of the stock that will determine how much taxpayers will realize on their investment.

However, creating a market for the stock where the United Auto Workers Union and the Canadian and U.S. governments all want to sell large blocks as soon as possible will be difficult.

Here, GM said it will make a small  installment payment of $1.2 billion to Canadian and U.S. taxpayers next month from funds already advanced by taxpayers.

Revenue

GM posted revenue of $28.0 billion in the third quarter of 2009, which was up approximately $4.9 billion compared to the revenue recognized by General Motors Corporation, or “Old GM,” in the second quarter of 2009.

The improvement was attributed to a higher global seasonally adjusted annual rate (SAAR) of 67.8 million units in the third quarter, compared to 62.7 million units in the second quarter of 2009, and GM’s stabilizing global share. In China, Brazil, India and Russia (BRIC), GM had 13% of the combined market share in the third quarter, up 0.2 percentage points from the second quarter of 2009.

GM’s global market share was 11.9% in the third quarter, up 0.3 percentage points from the first half of the year for Old GM.  GM’s U.S. market share in the third quarter was 19.5%, flat in relation to Old GM’s U.S. share for the first half of the year.

As GM phases out the Hummer, Pontiac, Saab, and Saturn brands, Chevrolet must pick up their lost sales, if GM is to hold onto share. It is a huge challenge for a company that has been  shedding  share for decades.  And is one of the  reasons a small loan repayment will be made — to boost consumer confidence in its health.

GM finished the third quarter with U.S. dealer inventories of approximately 424,000 vehicles; a reduction of approximately 158,000 units from the end of the second quarter. Henderson says that preliminary U.S. November sales look much like  October, and sees the SAAR at 10.8 million. Next year, GM predicts a SAAR of 11.5 million units, far below recent historical levels of 17 million units. With virtually ever other automaker targeting potential GM customers, the sales challenge GM  faces is daunting.

GM’s sales in the U.S. were helped by good performance of some of its newest vehicles, including the Chevrolet Camaro and GMC Terrain, as well as the Chevrolet Equinox, Buick LaCrosse and Cadillac SRX, which are generating higher average transaction prices and higher residual values than previous model year vehicles, according to the company.

The China market in particular is proving to be a strong contributor for the company’s results.  In fact, you could argue GM’s image is much stronger in China then anywhere else in the world. Maintaining a leading market share position in China, GM and its mandated joint-venture partners continue to grow, selling more than 478,000 vehicles in the third quarter of 2009, up from approximately 451,000 and 364,000 units in the second and first quarters, respectively.

Managerial Results

After the inclusion of special items, GM managerial earnings before interest and taxes (EBIT) before special items for the July 10-Sept. 30 period was a loss of $261 million, with GM North America reporting a loss of $651 million and GM International Operations reporting a profit of $238 million, although Europe lost $400 million. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $1.5 billion before special items.

Total structural cost for the company has been reduced by firings and retirements, including salaried and hourly headcount reductions, engineering savings and volume related savings. GM structural cost for the period July 10-Sept. 30, 2009 was $9.1 billion. Structural cost for Old GM for the period Jan. 1-July 9, 2009 was $22.0 billion. For the 9-month period ending September 30, 2008, Old GM had structural cost of $37.8 billion. Many more GM employees are due to go this January 1 form previously announced cuts.

“We have significantly more work to do, but today’s results provide evidence of the solid foundation we’re building for the new GM. With a healthier balance sheet and a competitive cost structure, our focus is on driving top line performance. We’ll achieve that by winning customers over, one at a time, with vehicles that deliver performance and value,” said GM President and CEO Fritz Henderson.

Balance Sheet and Cash

For the period July 10-Sept. 30, GM had a positive operating cash flow before special items of $3.3 billion, reflecting the favorable working capital impact from production start up post bankruptcy, timing of supplier payments and lower capital spending.

However, this favorable working capital impact is not expected to repeat itself in the fourth quarter. For the period July 1-July 9, Old GM had negative operating cash flow of $3.6 billion, reflecting extremely low production in North America.

As of September 30, 2009, cash and marketable securities totaled $42.6 billion. Included in this amount was $17.4 billion held in escrowed funds from the United States Treasury (UST) and Export Development Canada (EDC), with $8.1 billion of this amount able to be used for future repayments of the UST and EDC loans, $2.8 billion for the recently completed Delphi settlement and $900 million for health care in Canada, leaving a remaining escrow cash balance of $5.6 billion. so look for GM to make small quarterly and well publicized payments on its government debt as a marketing tool.

With improving global economic conditions, stabilizing industry sales and its healthier cash position, GM announced today that it plans to accelerate repayment of its outstanding $6.7 billion in UST loans as well as the C$1.5 billion ($1.4 billion) in EDC loans ahead of the scheduled maturity date of July 2015.

GM says it  plans to repay the United States, Canadian and Ontario government loans in quarterly installments from escrowed funds, beginning next month with an initial $1.2 billion payment to be made in December ($1.0 billion to the UST and $192 million to the EDC), followed by quarterly payments. Any escrowed funds available as of June 30, 2010 would be used to repay the UST and EDC loans unless the escrowed funds were extended one year by the UST. Any balance of funds would be released to GM after the repayment of the UST and EDC loans.

In addition, the company has begun to repay the German government loans, which were extended to support Opel, and had a balance of €900 million (~$1.3 billion) as of September 30, 2009. Opel has already repaid €500 million (~$0.7 billion) of that in November, and will repay the remaining €400 million (~$0.6 billion) balance by the end of the month. The cash balance in Europe as of September 30, 2009 was $2.9 billion.

GM’s total debt as of September 30, 2009 was $17 billion, including $6.7 billion in U.S. government loans, $1.4 billion in Canadian government loans, $1.3 billion in German government loans and $7.6 billion in other debt globally. The $17 billion debt level does not include the UAW or CAW VEBA notes or preferred stock, which are $2.5 billion, $0.7 billion and $9 billion, respectively.

While GM has reached settlements for the UAW and CAW VEBAs, the debt associated with the agreements will not be recognized until all preconditions are met and they become effective, which will be December 31, 2009 or later. Prior to the start of the new GM, total debt of Old GM was $94.7 billion as of July 9, 2009.