GM reports $1.2B loss, says it shows progress
POSTED: Monday, November 16, 2009 - 12:37pm
UPDATED: Wednesday, March 17, 2010 - 12:06pm
DETROIT – General Motors Co. said Monday it lost $1.2 billion from the time it left bankruptcy protection through Sept. 30, far better than it has reported in previous quarters and a sign that the auto giant is starting to turn around its business.
The company also said it will begin repaying $6.7 billion in U.S. government loans with a $1.2 billion payment in December. It plans to repay the debt over the next eight quarters, but could pay it back as early as next year. But the money will come from funds loaned by the government.
GM said its improved performance was fueled by new products including the Chevrolet Camaro muscle car, and the Chevrolet Equinox and GMC Terrain midsize crossover vehicles. The company's top sellers through October were the Chevrolet Silverado pickup truck and Impala full-size car.
The better showing also reflected lower debt payments. The automaker paid $250 million in interest for the latest period, far lower than the $1.1 billion it had to pay in the first quarter, before it went into bankruptcy protection. Before Chapter 11, GM was weighed down by a huge debt of almost $95 billion that has since been cut to $17 billion.
GM's global presence helped the company, particularly in China, where its sales of 478,000 in the third quarter increased 6 percent over the second quarter. GM earned $429 million before taxes and interest at its Asia Pacific unit, which includes China, and $245 million in Latin America. It had pretax losses of $651 million in North America and $437 million in Europe.
"We have significantly more work to do, but today's results provide evidence of the solid foundation we are building for the new GM," CEO Fritz Henderson said in a statement.
The company cautioned that the earnings numbers mean little because they don't comply with U.S. accounting standards and cover only the part of the quarter after GM left Chapter 11 bankruptcy protection on July 10.
Even more unusual is the $79.4 billion profit the troubled automaker reported for the first nine days of the third quarter, when it remained under bankruptcy court protection but was able to scrap colossal amounts of debt and other obligations.
"Direct comparisons are not necessarily applicable," said Chief Financial Officer Ray Young. "You can make some judgments in terms of trends."
GM maintains the numbers show a company making progress, riding dramatically reduced structural costs to a far better performance than the $6 billion loss GM reported in the first quarter, the last full quarter for which its numbers met accounting standards.
GM took in $3.3 billion more cash than it spent for the third quarter, far better than the $10 billion the company burned through during the first quarter.
Its third-quarter revenue totaled $26.4 billion, an improvement over the first quarter when its revenue dropped almost 50 percent to $22.4 billion from a year earlier. Revenue was aided by sales boosts in July and August from the U.S. government's Cash for Clunkers rebates.
GM said its global market share was 11.9 percent in the third quarter, up three percentage points from the first half of the year. The U.S. share stayed flat for the quarter at 19.5 percent.
Young said GM accountants are in the process of cleaning up the new company's books, revaluing assets and liabilities and changes to pension and health care costs that came from bankruptcy and a new contract with the United Auto Workers union.
GM expects to meet accounting standards when it reports full-year results for fiscal 2009, but those figures probably won't be released until March.
GM lost $78 billion from 2006 through the first quarter of this year. The gargantuan losses and debt eventually left the company unable to operate without government help.
GM entered bankruptcy protection with roughly $94.7 billion in debt. It emerged with $17 billion, including the $6.7 billion owed to the U.S. government. The government has given GM a total of $52 billion, including $45.3 billion in exchange for a 61 percent equity stake in the company.
Young said the government placed $16.4 billion of GM's loan money into a contingency fund in case sales worsened or other problems cropped up. Now, GM doesn't need the contingency money and can repay it to the government, he said.
But Henderson said GM felt it was prudent not to repay the whole amount in December, in case conditions change.
The automaker also says it will begin repaying $1.4 billion it owes to the Canadian and Ontario governments in December. GM also has paid $700 million on a $1.3 billion loan from the German government to keep GM's Opel division in operation. The balance will be repaid this month, GM said.
Henderson said a "reasonably large" part of the Opel repayment came from GM's U.S.-generated funds, while some came from Opel funds. He said GM is a global company and needs to have flexibility to use the money to run global operations.
The CEO disagreed with a report by the General Accounting Office saying that it was doubtful the U.S. government would recoup all the money given to GM. He said full repayment is a function of stock value, and he intends to make the stock valuable by managing the company well.
"It is my mission to disprove the GAO," Henderson said.
Although GM reported positive cash flow for the third quarter, it does not expect that to continue into the fourth quarter because of the government loan repayments and a $2.8 billion payment to help Delphi Corp., its former parts division, out of bankruptcy protection.
GM has said it plans to sell stock to the public late next year so taxpayers can recoup at least part of their remaining investment. Henderson said they'll be ready for next year, but the timing of a sale depends on capital markets and the company's performance.