Friday, November 7, 2008

GM: Can We Really Be That Bad? Yes We Can!

Ok, so it's true that GM reported a net loss of $2.5 billion or $4.45 per share for the third quarter of 2008.  However, the automaker lost $42.5 billion or $75.12 a share in the third quarter of 2007 so this is a big improvement.  Unfortunately, if you were looking for a silver lining in the largest US automaker's earnings results, that's it, because it only gets worse from there.  On an adjusted basis, GM's net loss was $4.2 billion compared with a net loss from continuing operations of $1.6 billion in the same period a year ago.  Revenues dropped to $37.9 billion, down from $43.7 billion in the year-ago quarter.  For those interested in combing through the details of the various charges, offsets etc, and whatnot, you can find them in the press release here.  The company sums up its situation fairly succinctly in the following paragraph from the press release:

"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 programs, 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."

To summarize, GM can't stay in business unless:
  • Automotive conditions improve SIGNIFICANTLY (the government buys everyone a car.)
  • It can sell some assets (to the government)
  • It takes more aggressive working capital initiatives (stops paying suppliers)
  • Gains access to capital markets (Hello Fed?)
  • Or other private sources of funding (Hello Kerkorian?)
  • Receives government funding (Hello Pelosi?)
  • Or some combination of the above (good luck with that)
Not the sort of news you want to drop on the market on a Friday, but perhaps we'll all wake up Monday morning with yet another government bailout announcement.  Sigh.

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