Loss Deeper Than Estimates

By Reuters -  |  Posted 2008-08-01 Print this article Print

The struggling automaker's cash position has become an increasing concern for investors and analysts, who have begun to question whether and when GM's liquidity could fall below the levels needed to run its cash-hungry global operations.


GM's net loss was equal to $27.33 per share, compared with a profit of $891 million, or $1.56 per share a year earlier, reflecting a sharp drop in demand for the light trucks that represent about 60 percent of its sales.

GM took $9.1 billion in charges against second-quarter results, including $3.3 billion for buyouts of U.S. factory workers, $2.8 billion for its exposure to bankrupt former parts unit Delphi Corp.

Revenue fell to $38.2 billion from $46.7 billion.

Excluding charges, GM posted a loss of $6.3 billion, or $11.21 per share. The loss on that basis was more than four times Wall Street expectations for a loss of $2.67 per share, as tracked by Reuters Estimates.

After losses totaling $51 billion over the previous three years, and a $3.25 billion loss in the first quarter, GM faced a battery of problems in the second quarter, including a slide in U.S. sales that sent its shares to a 54-year low.

GM's global auto sales dropped 5 percent and it lost $4 billion on its auto operations before charges in the second quarter as record gas prices sank demand for trucks and SUVs.

The automaker was also hit by some $2 billion in pretax losses from a strike by the United Auto Workers union at a key supplier and some of its own plants during the quarter.

Then the market for financing leases on big SUVs collapsed, saddling both GM and its smaller rival Ford Motor Co with large losses.

On Thursday, GMAC LLC, GM's former financing arm, was forced to write down the value of the GM's lease contracts because of the slumping value of the carmaker's big SUVs.

Under lease contracts, automakers and their finance companies rent vehicles to consumers and sell the used vehicles when the leases expire at wholesale auctions.

But the collapse in demand for SUVs this year has been accompanied by a steep drop in their resale value as consumers flock to more fuel-efficient passenger cars.

The resulting drop in resale values on SUVs prompted a $717 million charge by GMAC and bigger subsidies by GM, which retains 49 percent of the finance company after spinning off the remainder to Cerberus Capital Management.

GM said declining lease values at GMAC had depressed its second-quarter results by $2 billion.

Shares in GM touched a 54-year low in July and remain down over 55 percent since the start of the year. GM bonds also hit a record low on Thursday after ratings agency Standard & Poor's downgraded GM to "B-minus" and warned the automaker was on track to burn through roughly $16 billion this year.

GM has not given a timetable for returning to profitability. Many analysts now expect that a substantial recovery for U.S. auto sales will not come until 2010.

(Reporting by Kevin Krolicki; Editing by Derek Caney, Gerald E. McCormick, Dave Zimmerman)


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