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GM Loses $3.4B in Total in 2005; Automotive Operations Loses $5.3B

26 January 2006

Gm05financials
Results for GM Automotive Operations. Click to enlarge.

General Motors reported a 2005 calendar-year loss, excluding special items, of $3.4 billion compared with net income of $3.6 billion in 2004. The size of the operational loss was bigger than analysts’ estimates.

GM’s automotive operations reported an adjusted loss of $5.3 billion in 2005, compared to adjusted earnings of $1.2 billion in 2004. The decline was principally driven by large losses in North America (-$5.6B), and partially offset by improved results in Europe and in the Latin America, Africa and Middle East region.

In the fourth quarter of 2005 GM’s automotive operations reported an adjusted loss of $1.5 billion compared to adjusted earnings of $268 million in the year-ago period.

Including special items, GM reported a total loss of $8.6 billion, or $15.13 per share for 2005, compared to net income of $2.8 billion, or $4.92 per share in the year-ago period. Revenue was $192.6 billion in 2005, compared to $193.5 billion in 2004.

The special items include an after-tax restructuring charge of $1.3 billion at GM North America and a preliminary after-tax charge of $2.3 billion associated with the UAW/Delphi benefit guarantee.

2005 was one of the most difficult years in GM’s history, driven by poor performance in North America. It was a year in which two significant fundamental weaknesses in our North American operations were fully exposed—our huge legacy cost burden and our inability to adjust structural costs in line with falling revenue.

—GM Chairman and CEO Rick Wagoner

GM sold 9.2 million vehicles worldwide in 2005, the second-largest volume in GM’s history, on the strength of increased sales in three of GM’s four business regions and all-time sales records in the Asia Pacific and Latin America, Africa and Middle East regions.

Vehicle sales in the Asia Pacific region were up 20%, the Latin America, Africa and Middle East region increased 19%, and Europe posted a 1.3% gain. Unit sales were down 3.1 percent in North America in 2005. As a result, GM’s share of the global automotive market was 14.2 percent in 2005, down from 14.4 percent in 2004.

GM North America (GMNA) reported an adjusted loss of $5.6 billion in 2005, compared to adjusted earnings of $1.1 billion in 2004, reflecting a weaker sales mix, lower production volumes stemming from a significant reduction in dealer inventories and lower market share, increased material costs including those for product improvements, continuing high health-care costs and increased spending on marketing and advertising.

In the fourth quarter of 2005, GMNA reported an adjusted loss of $1.5 billion, compared to adjusted earnings of $449 million in the year-ago period. The loss in the fourth-quarter of 2005 was primarily attributable to lower production of full-sized sport utility vehicles due to the start-up of the all-new next generation vehicles in this category, increased health-care costs, and higher marketing and advertising spending. In addition, there were favorable non-recurring items in the year-ago period.

GM expects to reduce its North American structural costs by $6 billion on a running-rate basis by the end of 2006, with more than $4 billion of the reduction coming in calendar year 2006, and to reduce its net material costs by $1 billion.

January 26, 2006 in Market Background, Sales, Vehicle Manufacturers | Permalink | Comments (17) | TrackBack (0)

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They keep blaming labor and health care costs, but the fundamental issue is that they don't make cars that people want to buy. They have to bribe them with all sorts of incentives to keep the inventory moving.

If you gave GM the product lineup from say - Toyota, their sales would be stronger, and their financials would look better.

^ I'm not so sure that's entirely true.

An article floating around on yahoo! today pointed out that the quality of their cars (measured in number of complaints per 100 autos sold) is actually consistently above average, and yet most folks believe that their quality is sub-Japanese. This is likely a holdover from 10 years ago, when that was in fact more often the case.

In the mean time, they are facing these costs that Japanese & European companies don't -- health care. I'm constantly surprised that Michigan doesn't act to provide state supplied health care a la Hawaii (and likely Massachusetts soon), taking some of that burden off of the Big 3 in MI.

Obviously, they bet heavily on the big vehicles we around here don't like much, and their late 90s early 00s payoff has soured quite a bit. Then, they didn't see the writing on the walls soon enough and had a glut of inventory, and had to sell it cheap to get rid of it.

It's a mixture of problems. Poor public perception, the wrong model line, and contractual medical benefits are all playing a role in GM losing so much.

I think they'll turn it around within the next 18 months.


I wasn't specifically referring to quality issues, but I must admit I still have those perceptions that GM cars are of inferior quality.

My major beef is that they continue to build big gas guzzlers, and don't take fuel economy seriously. In fact, they fight tooth and nail any attempt to increase fuel efficiency as a matter of public policy. Any cars that they do develop which might be fuel efficient are poorly designed - it is almost like they really would rather upsell people a gas guzzler than have them buy a fuel efficient car, and my feeling is that they intentionally do a poor job to give people an incentive to buy a more expensive (and gas-guzzling) car.

In recent pronouncements, they have said that they are looking for the large SUV market to turn around and their thinking is that this will bring GM back into the black. My thinking is that the large SUV market is quickly dying and will never come back. GM's refusal to acknowledge this is sort of equivalent to having them driving full speed off the edge of a cliff. My guess is that in a couple of years they will be in Chapter 11.

-Stomv- I don't know about Japan, but what you say about Europe is not true, Germany has within about the highest
hourly labor costs in this world, Companies have to pay for health insurance, unemployment and retirement for their employies..

No gm does make good small cars that sell very well.. just not here.

Oh the reason gm small cars arnt good in the us is the jealthcare and labor cost difference. A few gfrand doesnt matter on a big car but on a small one it means cheaper parts and cut corners or it mesans selling at a loss.

You cant sell a 10000 buck car for 13000 and not make a profit when your competetors can make a 12000 car and sell it for 13000 and make a profit. THAT is the effect of health care and labor costs.

I think we've had some of this discussion before. GM actually sells more, yes more, small cars than anyone, no? And it absolutely dominates the market for the smallest, most fuel efficient models (Ward's lower small), no?

The discussion on costs is rightly centered on health care. If the US firms had the same healthcare costs as Toyota and the rest have in Japan, the savings would be $1,000 - $1,500 per vehicle, which amounts to billions in earnings. AT Kearney pegs Toyota's cost in Japan at about $100 per car, counting both employees and retirees.

Mike is right on Germany, but that is also why auto production there is under lots of pressure. They are perhaps 20 years behind us on facing import competition and maybe 15 behind in acess to cheap labor nearby. The strain is showing and it ain't pretty.

I think we've had some of this discussion before. GM actually sells more, yes more, small cars than anyone, no? And it absolutely dominates the market for the smallest, most fuel efficient models (Ward's lower small), no?

The discussion on costs is rightly centered on health care. If the US firms had the same healthcare costs as Toyota and the rest have in Japan, the savings would be $1,000 - $1,500 per vehicle, which amounts to billions in earnings. AT Kearney pegs Toyota's cost in Japan at about $100 per car, counting both employees and retirees.

Mike is right on Germany, but that is also why auto production there is under lots of pressure. They are perhaps 20 years behind us on facing import competition and maybe 15 behind in access to cheap labor nearby. The strain is showing and it ain't pretty.

Health care is a big issue. But I think there are macroeconomic forces also working against U.S. firms at this point. The zillion-dollar budget deficits are draining asset markets of the capital needed to invest in industry, driving up interest rates in the U.S., though until the past couple of years that's been offset by capital inflows largely from Japan and China. 2005 was the first year in history in which total spending exceeded total income in the U.S., meaning that thanks largely to the budget deficit, we had an overall savings rate below zero!

Meanwhile, Japanese firms go on successfully raising massive amounts of capital while paying only their traditional 1% dividend, and China has something like a 40% savings rate. Europe also does enormously better than the U.S. in this regard, though I don't have hard numbers. For a manufacturing firm with significant capital costs, the U.S. just can't compete with that.

That's one reason why U.S. manufacturing did so well in the 1990s: the growing economy certainly helped, but the shrinking deficit turned surplus let us do better relative to the rest of the world.

[q->t to email]

Well demographics dictates that the us car market shrink. And the china market is exploding so why expend extra money fighting a worthless fight here when you can make oodles in china and just sell hybrids and wait for fuel cells.

At the very least they will force the unions to give in to deep cuts at worst they will go under for awhile and null the whole thing. It just makes bussiness sense not to fight this trend too hard as in the end its better for gm and ford.

I saw an article somewhere that says the cost of healthcare for GM adds a little under $1,000 to the cost of a vehicle. I don't think $1,000 a vehicle is making or breaking GM. A reputation for low quality, earned because of a generation of planned obsolescence, unimaginative car design, sleazy dealer networks has destroyed customer loyalty and replaced it with lingering suspicion.

Why is it that GM cars are often cheaper than Japanese cars if it costs the Japanese less to produce and they still don't sell? Even the big ones. GM minivans cost less than a Honda Odyssey.

Gm doesnt pay the healthcare bill the people who buy gm cars do and its billed in the form of less car for same price.

It doesnt come from gms butt from the underpants gmones magic poop dance.

I blame GM management. These guys seem to have a tedious grip on reality, as shown by these recent statements:
1. We hope to make a profit this year. [In April 2005 -in the end, they made a $8.6 billion loss].
2. The employee-discount program was a homerun. [Only as long as you ignore profits. While the programs was running 3rd quater 2005, GM made a loss of >$1.5 billion. Once the sale ended, they made a loss of almost $5 billion in the 4th Q, mostly thanks to the hangover. Homerun? More like a sacrifice bunt. Except that you have to ask who in his right mind will sacrifice profits for sales?]
3. We are going to be selling fuel-cell cars in five years. [Forget all the trouble of providing the infrastructure for the fuel supply. Currently each fuel-cell car costs about $1 million. So GM thinks it can reduce the costs by a factor of about 100 in the next couple of years and then have a factory ready to be churning out these cars in three years? Earth calling GM...]

What he said.

If you assume they failed in thier goal your wrong. As I posted over a year ago gm made SURE they would post a huge loss. They just had to wait till suvs went out of style.

I don't think $1,000 a vehicle is making or breaking GM.

So, GM lost $3.4B selling 9.2M vehicles worldwide.

If that $1000 were $500 and it applied to all cars, they'd have made $1.7B instead of losing $3.4B.

Yeah, I'd say the $1000 per vehicle is certainly making or breaking GM.

Except that you have to ask who in his right mind will sacrifice profits for sales?

Anyone with a glut of inventory. GM knew it had to make deep discounts to move all their cars before the new year turnover. I'd bet they also predicted then that they'd be cutting workforce to reduce the amount of vehicles they're making, so as to avoid another clearance sale this year.

If they didn't spin their inventory clearance as a PR move, they'd have lost even more money.

Let's consider some facts and statistics concerning the current plight of General Motors, specifically comparing the past to the present.

In the year 1933 General Motors lost money- $100,000 to be exact. In 2005 money (worth considerably less than a 1933 dollar!) that translates to $1,450,000. This was the only year in the decade of the 1930's that they lost money, which wasn't considered to be all that big a problem because in 1933:

1) 70% of all banks had failed
2) The unemployment rate was 25%
3) Half of ALL mortgages were in foreclosure
4) The savings rate turned negative
5) House Prices had dropped 80% from their peak in 1929
6) Debt as a percentage of G.D.P. was about 280%
7) 17% of the population was employed in manufacturing,
down from 30% in the year 1918. (When the percentage
of population employed in manufacturing drops into
mid-teens range, an economy is generally considered
to be going into a Great Depression)

Now turn to today:

1) G.M. is losing $24,000,000 per hour
2) The savings rate has turned negative for the first time since 1933
3) Debt as a percentage of G.D.P. is over 330%
4) People employed in manufacturing is currently 9%
of the population, down from 30% in the late 1960's.
5) 40% of all home buyers opt for 0% or negative amortization mortgages; they save nothing, and each household has about $20,000 in credit card debt (these things were not permitted even prior to the great Depression)

If we aren't in the early stages of another Depression, then please do tell me what in the hell is going on?

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