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  • GM Paints Silver Lining on Cloudy Earnings Report

    Not very often is losing $1.2 billion good news but that’s the way General Motors is spinning its third quarter earnings report. GM claims its finances are stable enough to begin repaying the $6.7 billion in government loans as soon as December and could be paid off ahead of schedule, potentially by June of 2010.

    But that’s a small share of what the government (aka the taxpayer) invested in GM. Americans unwillingly invested over $80 billion in auto industry, allowing the government to take a 61 percent stake and a 10 percent stake in GM and Chrysler, respectively. On November 2, the Government Accountability Office (GAO) released a study cautioning that the Treasury will not recover much of the money invested in the automakers unless the companies’ values “grow substantially above what they have been in the past.” According to auto czar Steve Rattner, of the $50 billion invested in GM, $20 billion has already been lost for good. At a recent speech at the Brookings Institution, he said bluntly, “I don’t think we’re going to see [it] again.” Although it is difficult to assess the long-term viability of GM, it is clear much of the taxpayer-funded stock will be lost.

    The reported loss of “only” $1.2 billion was spun as progress towards stability since it is much less than the $2.5 billion lost in the third quarter of 2008. GM is still determining the value of its assets after bankruptcy, however, thus the third quarter financial statements do not adhere to Generally Accepted Accounting Principles (GAAP). GM’s Chief Financial Officer Ray Young admonished that “Direct comparisons are not necessarily applicable.”

    By comparison, although the other two of Detroit’s Big Three were in less trouble than GM, they are faring much better. In its first post-bankruptcy announcement, Chrysler Group announced that they broke even in September, ending up with more cash than they had since arising from bankruptcy. Sergio Marchionne, the Chief Executive Officer of Fiat, which now owns twenty percent stake in Chrysler, stressed that while the company’s financial goals are being met, the overhaul will continue with 75 percent of company’s product line changing in the next 14 months.

    Ford, the only company of Detroit’s Big Three that refused bailout cash, quietly posted a net income of $1 billion for the third quarter of 2009, up $1.2 billion from the third quarter of last year. Ford’s improved product line has thus far outperformed Chrysler and GM’s. For instance, the Ford Fusion moved into the top selling cars in the United States and the number one selling car domestically while Ford’s “avoidance of a government bailout this year has helped attract shoppers.”

    Ironically, what’s left of the bailout cash can actually be used to pay back the Treasury’s $6.7 billion loan. GM can use the $13.4 billion of the bailout money it has in an escrow account to pay back the loan. Although GM’s finances have improved, it is by no means indicative that the government bailout was a success and more a sign that bankruptcy was a necessary step for GM to restructure for long-term viability.

    Posted in Economics [slideshow_deploy]

    5 Responses to GM Paints Silver Lining on Cloudy Earnings Report

    1. TEK NY says:

      Another confusing wall street report. Why if the company continues to lose money should it pay back government loans except to create a false impressions that everything is going according to plan?

    2. Bobbie Jay says:

      My sympathies to GM, but why would such a once successful business, cower to government? GET RID OF THE UNION! AND GOVERNMENT!

      My love remains, as it always has been, in the STRENGTH AND DIGNITY OF FORD.

    3. Freedom of Speech, T says:

      I will never defend so-called “white-collar” criminals like “Bernie Mad Off With The Money.

      But, what this government and many lobbyists are doing to the American People is infinitely worse. It is not just the money, but the deceit and destruction of whatever trust and values are left.

      Then I hear a certain administration official say “We need to trust what they are doing?”

      Is there a legal licensed doctor out there who will volunteer services for conducting lobotomies?

    4. Dave C, IL says:

      Since when is losing $1.2 Billion a good thing, even if it was less than expected. This is crazy. Sure, they can pay back $6.7 Billion of loans, but what about the other $50 billion? At any rate, good call Freedom of Speech. Transparency International ranked the US 19th in the world in terms of being least corrupt. Why are we not 1? Oh, because they sighted our congress as the organization in which corruption runs rampid. By the way, they are the ones voting to give these companies money, right?

    5. Pingback: Obama auto’economics: The Stupid, The Unethical, and the Irresponsible

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