GM's 2Q 2008 - Financial Results

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August 4, 2008

On Friday August 1, GM released its 2nd Quarter financial results and July US sales. As expected, the company’s performance in the quarter was dismal, reporting a $15.5 billion loss. The company’s net income was a loss of $6.3 billion excluding special items. Lost in the headlines was that majority of $9.1 billion loss was attributed to non-cash one-time charges. GM booked a $2.0 billion write-down on off lease vehicles to reflect lower residual values.

2Q Highlights*

2008

2007

GMNA Revenue

$19.8

$29.7

GME Revenue

$10.6

$9.5

GMLAAM Revenue

$5.1

$4.3

GMAP Revenue

$5.2

$5.3

GM Consolidated Revenue

$38.2

$46.7

GM Operating Cash Flow

($3.6)

$1.1

 

 

 

 

* In billions

GM reported at the end of the second quarter the company had $21.0 billion in cash, marketable securities and available assets of the Voluntary Employees Beneficiary Association. This is down from $23.9 billion as of March 30, 2008. The company further stated that it needs to have $11 to $14 billion dollars to cover the cost of operations. With the current cash reserves and available line of credit, the company has enough cash at the recent burn rate for the next 9 months.

The biggest concern continues to be the negative cash flow. Like the first quarter, GM had a negative cash flow of $3.6 billion for a total of $7.2 billion in 2008. Adding to the cash flow problems has been the deteriorating revenue at the North American operations. In the second quarter, revenue dropped by almost $10 billion compared to the same period last year and also down from $24.8 billion in the first quarter 2008.

GM’s European (GME) operations continue to flounder and earned an adjusted net profit of $99 million for the quarter. The Asian (GMAP) operations lost $65 million. It has been almost a decade since it had sustained profits. Holden broke even with it being assumed GM Daewoo and Chinese joint ventures contributing to the remainder of the loss. The one bright spot has been GM’s Latin American (GMLAAM) operations contributing $445 million to the bottom line. GM’s overseas operations continue to grow in sales volume however that volume has not been profitable especially as NA collapses.

GM’s growth in international markets has not been strong enough to offset the losses in NA, the company’s biggest market by sales and revenue. As the US market has shifted out of profitable light trucks and SUVs, the company’s revenue per unit dropped by over $1,600 without factoring the write down on lease vehicles. Including the lease write down, revenue per unit was under $18,000.

Based upon the company’s sales in July, this trend should continue into third quarter. GM’s July sales were down 27% with truck sales dropping 35% and cars 12% compared to July 2007 (Not adjusted for selling days). The highly profitable GMT-900 pickup and SUV line of vehicles was down 35% for the month. As the market continues to shift to smaller and cheaper vehicle, I believe in the near term the company’s revenue per unit will remain around the second quarter level.

In summary, GM’s financial picture presented last Friday identified the cash burn rate remains high at about $1 billion per month and revenue per vehicle is dropping as truck and SUV sales fall. Given the long lead times needed to implement the latest turnaround plan, I expect this trend to continue until the end of the year.

 



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