GM's "Turnaround" On Ice After Big Loss?

February 13, 2008

General Motors executives hope a combination of employee buyouts, cost-cutting and new products will reignite the company’s automotive business in North American and Europe after the company posted a huge loss for 2007.

Fritz Henderson, GM’s chief financial officer, acknowledged in a conference call that results in North America and Europe, despite extensive restructuring, were still below par after GM reported a net loss of $38.7 billion loss for 2007.

The loss is the largest annual loss ever for an automotive company. The losses resulted from a change in charges for tax credits the company had accumulated on its books and had no hope of ever using, Henderson said.

The results, which included losses from GMAC, GM’s once profitable mortgage business, cast a pall over the talks of GM’s comeback. The talk had picked up some momentum in past couple of months after GM did better than rivals in North America and beat back Toyota’s challenge to the title of being the world’s top automaker.

As the 2007 results were announced, GM officials said they had reached a consensus with the United Auto Workers on a new round of buyouts that will extend to all of the 74,000 blue-collar employees. The buyouts include special retirement incentives of $45,000 for production employees or $62,500 for employees in skilled trades with more than 30 years’ service.

GM also offered new guidance, saying it “remains confident in the 2010-2011 opportunities to further improve earnings and cash flow. Most notable is the potential to realize the full impact of the GM-UAW labor agreement which is expected to provide significantly greater flexibility and yield additional savings of $4 billion to $5 billion.”

GM officials also noted that if the U.S. market returns to strong sales volumes in 2009 and after, the company could see an additional $1 billion to $1.5 billion in income.

Nevertheless for the fourth quarter of 2007, GM's automotive operations had an adjusted loss before tax of $803 million, compared to adjusted earnings before tax of $8 million in the year-ago quarter.

General Motors North America had an adjusted loss before tax of $1.1 billion in the fourth quarter, compared to an adjusted loss before tax of $129 million in the fourth quarter 2006.

Henderson said the for the year by GMNA were largely attributed to a softer U.S. market, and the strategic decision to reduce dealer inventory by approximately 150,000 units and lower sales of daily rental vehicles by about 110,000 vehicles in the U.S.

For the third consecutive year, a majority of the company's sales--almost 60 percent--were outside of the U.S. Record sales performance was achieved in key growth markets throughout Eastern Europe, Latin America and the Asia Pacific, Henderson said.

In addition, GM's core automotive business generated record revenue of $178 billion in 2007, a $7 billion improvement over 2006 thanks to the growth in emerging markets and the favorable foreign exchange against a weaker U.S. dollar, the company said.--Joseph Szczesny

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