No more over-promising and under-delivering at GM, insists CFO Chris Liddell.
General Motors reports it lost $4.3 billion during the nearly six months after it emerged from bankruptcy on June 10, last year, but senior GM officials stressed that during the final quarter of 2009, the company’s finances improved substantially, making it very possible the long-troubled automaker will be back in the black for 2010. ( See GM Has a Chance of being Profitable by Ken Zino)
Using what it described as “fresh start accounting,” GM’s Chief Financial Officer Chris Liddell laid out a cautiously optimistic snapshot of the automaker which, he said, is “building a foundation for this company to return to public ownership.”
But Liddell stressed that there are numerous uncertainties in the way and that prevents GM from setting a specific timetable for both a financial turnaround and for the planned Initial Public Offering that will help raise cash needed to repay the U.S. Treasury for last year’s $52 billion bailout.
In a conference call with reporters and analysts, Liddell and newly appointed Chief Accounting Officer Nick Cyprus stressed that the post-bankruptcy GM is a very different company from the one that went into Chapter 11, last year. Among other things, it has slashed its debt and liabilities by tens of billions of dollars, ending 2009 with face value debt of less than $8 billion, excluding government money that now gives the U.S. government a 61% stake in the automaker. ( See GM Delays Annual Report Filing by Ken Zino)
In the near-term, GM plans to finish repaying $6.7 billion in cash it owes the Treasury by this coming June, the same time it intends to pay off loans from the Canadian government.
During the fourth quarter of 2009, the new accounting procedure shows GM lost $4 billion on an Earnings Before Interest and Tax, or EBIT, basis. And all but $600 million of that was due to one-time charges, so Liddell said the company was “getting close to break even.”
Significantly, revenues for the period after GM emerged from bankruptcy rose to $57.5 billion, up from $47.1 billion during the period from January 1 through July 9, 2009 – despite the fact that GM began shutting down four of its eight North American brands following its bankruptcy.
At the end of the year, the automaker had $142 billion in assets, though the vast majority of that, said Liddell, was in what accounts categorize as “good will.”
Winning over the good will of consumers, dealers, investors and suppliers, the CFO stressed, will be critical to turning things around for General Motors. But Liddell insisted there are positive signs for the company, including the recent success of some of its newest products, such as the Chevrolet Equinox.
Asked how likely it will be that GM can turn a profit for 2010, Liddell said, “This company has been guilty in the past of over promising and under-delivering. I’d rather do the opposite of that.” But he nonetheless expressed cautious hope that with the overall U.S. car market recovering – and with GM gaining ground in China, now the world’s largest auto market – this is becoming a good possibility.
Showing sustained economic growth will be critical for GM as it prepares to become a public company once again. The automaker is reportedly under pressure from the Treasury to cash out as soon as possible, but Chief Executive Officer Ed Whitacre has repeatedly stressed that an IPO won’t occur before the automaker believes the market is ready.
And Liddell maintained that position during his meeting with reporters.
But even after it once again goes public, GM’s recovery won’t be complete. The automaker still has to bump up its credit rating, a factor that can yield massive savings in borrowing costs. But that process, stressed Liddell, “likely will take years.”