/ 1 August 2008

GM posts $15,5bn loss as sales sputter

General Motors posted a $15,5-billion quarterly loss on Friday, as North American sales dropped by 20% and plunging prices for SUVs prompted deep charges for its auto finance business.

GM shares tumbled 6% in reaction to the automaker’s announcement of the deeper-than-expected loss, the third-largest quarterly loss in its history.

The number one US automaker also burned through $3,6-billion in cash in the quarter as it ran down inventory of slower-selling vehicles in its slumping home market.

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% of its sales.

GM took $9,1-billion in charges against second-quarter results, including $3,3-billion for buyouts of US factory workers, $2,8-billion for its exposure to bankrupt former parts unit Delphi and $1,6-billion to write down lease values.

Revenue fell to $38,2-billion from $46,7-billion a year earlier.

Excluding one-time items, GM posted a loss of $6,3-billion, or $11,21 per share. Analysts on average had forecast a loss on that basis of $2,67 per share, according to Reuters Estimates, and had looked for revenue of $42,36-billion.

GM ended the second quarter with $21-billion in cash and $5-billion in credit facilities. It said it had provided notice in July that it would draw down $1-billion under a secured revolving loan facility.

Chief financial officer Ray Young said GM’s second-quarter cash position was slightly better than the automaker had forecast and said GM was on track with a plan to free up $15-billion in liquidity through 2009 with a combination of cost-cutting, asset sales and new borrowing.

”Our focus is cash flow and liquidity. That is our focus,” Young said.

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.

Ratings agency Standard & Poor’s on Thursday downgraded GM to ”B-minus” and warned the automaker was on track to burn through roughly $4-billion per quarter this year, sending GM bonds to a record low price.

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 US sales that sent its shares to a 54-year low.

GM’s global auto sales dropped 5% 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 was also hit by about $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 with large losses.

On Thursday, GMAC, 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% 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. – Reuters