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GM Loses $3.2 Billion — But It’s Good


General Motors Corp.’s finances took a turn for the better in the second quarter despite a huge loss from one-time charges that will ease thousands of GM employees into early retirement and off the company’s payroll.

 

Nevertheless, chief financial officer Fritz Henderson declined to predict when the automaker’s critical North American Operations would return to profitability. “We’re not going to offer any guidance or projections. We’re not going to be public about our predictions,” he said.

 

Excluding special items, GM posted an adjusted net income of $1.2 billion, or $2.03 per share, on record revenue of $54.4 billion for the second quarter, which reflected a $1.4 billion improvement from the year-ago adjusted loss of $231 million, on revenue of $48.5 billion.

 

GM finished the second quarter with a net loss of $3.2 billion, or $5.62 per share, compared with a reported loss of $987 million, or $1.75 per share, for the same period a year ago. The net loss included a total of $4.3 billion, or $7.66 per share, in special items that reflected a $3.7 billion after-tax charge related to the accelerated attrition program, in which 34,400 hourly employees participated. More than 10,000 employees have left the payroll and the balance will leave during the third and fourth quarters,Henderson said.

 

Other special items included a loss related to the pending sale of 51 percent of GMAC, a gain on the disposition of Isuzu shares, and other restructuring-related charges, GM officials said. Henderson said GM should complete the sale during the fourth quarter.

Richard Wagoner, GM chairman and chief executive officer, said positive operating performance showed that the effort sunk into the company’s turnaround was yielding dividends.

 

“Our turnaround has not just gained traction, it’s accelerating into high gear,” Wagoner said. “While significant work still remains, our ability to identify and initiate $9 billion in cost cuts over the course of the past year is unprecedented in this industry.”

 

“We’re particularly pleased with the speed with which our people have implemented our turnaround plan. Conventional wisdom is that you can’t turn a ship as big as GM around quickly. We aim to prove that conventional wisdom wrong,” he said.

 

GM’s global automotive operations earned $362 million on an adjusted basis during the second quarter, excluding special items, and represented a year-over-year improvement of $1.3 billion.

 

GM North America posted an adjusted net loss of $85 million, excluding special items, in the second quarter of 2006, a $1.1 billion improvement over the prior year period. Other regions, notably GM of Europe and GM Asia Pacific, also reported better earnings.

 

GM’s global market share in the second quarter was 13.8 percent, up from the first-quarter market share of 13.1 percent, but down from 15.1 percent last year.

 

“We know we have to develop and build great cars and trucks to grow our business and we’re encouraged by the recent success of our newest vehicles, particularly in the U.S. market,” Wagoner said. “Our new full-size SUVs, the Chevrolet Impala and HHR, and Pontiac G6 have all posted strong sales this quarter.

 

“More significantly, the impact of our cost-reduction efforts on the bottom line will accelerate in the second half. This, combined with building sales momentum from our new cars and trucks and improved marketing, should enable us to continue to improve year-over-year results significantly,” he said.

 

Henderson also said during a conference call that GM was reducing the amount it spends to cover the cost of repairs performed under warranties and other quality-related costs.

 

In addition, pension costs have been trimmed due to the success of the hourly attrition program and changes in the salaried pension funds. The changes in the salaried plans will save GM about $700 million this year, Henderson said.

 

Henderson also said GM’s management was acutely aware of the fact that it can’t rely on cost cutting to ensure its success. GM has to do more to boost revenue, he said.

 

“We’re not satisfied with these results at all. We’re still not generating significant profitability,” he said. “The objective is to build a successful business, not just to break even. But it is an important sign of the turnaround is gaining traction.”

 

Peter Morcici, professor of business at the University of Maryland , noted GM’s inventories appear to be climbing since the automaker has increased production at a time when its sales have dropped.

 

Henderson , however, said GM was “relatively comfortable” with the current level of inventories.

 
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