GM Posts Record One-Time Loss as International Sales Bolster North American Losses

General Motors (GM) reported its fourth-quarter and full-year 2007 results yesterday, posting dramatic improvements in all regions despite a significantly difficult time in the North American market in 2007. Special one-time expenses resulted in the highest record loss for any American automaker in history. For the fourth quarter of 2007, GM posted a global net revenue of US$48.1 billion, down from last year's fourth quarter, but good for a record portion of automotive-related revenue. Net income (excluding special items) rang in positive as well, at US$46 million. For the full year, however, GM posted its biggest loss ever due primarily to a massive write-down of deferred tax credits taken in the third quarter. Total 2007 revenue was US$181.1 billion, down from US$204.7 billion in 2006. Part of the reduction in revenue can be explained by the loss of 50% of GMAC GM posted a net loss of US$279 million from continuing operations, but including one-time special expenses, racked up a total net loss for 2007 of US$38.7 billion.

Region by region, GM continues to struggle in its core home market of North America, but signs of the turnaround gaining traction are becoming more apparent. The fourth quarter saw a net loss of US$1.06 billion, compared to a loss of US$129 million in the same quarter 2006. The deterioration of profitability for GM is attributable largely to GM's reduction in volume for North America for the quarter, featuring significant drops in sales to daily rental fleets as well as dramatic reductions in dealer inventory and overall reductions to North American market volume. For the full year, the North American region (still GM's biggest) lost US$1.54 billion, an improvement over 2006's loss of US$1.63 billion.

GM's European division (GME) saw fortunes fall for the quarter as well, going from a US$12 million loss in the fourth quarter of 2006 to a US$215 million shortfall in the fourth quarter 2007. For the full year, GME was profitable however, posting a US$55 million pre-tax income, down from last year's US$357 million profit. The company reported that volume and share were both up for the European region in the fourth quarter, but the German market in particular was difficult, leading to losses for the quarter. For the year, GM reports significant progress in Russia (sales up 40%), and for the Chevrolet brand across the continent, which is finding success thanks to imports of the company's GMDAT South Korean offerings.

For GM's Latin America, Africa, and Middle East region (GMLAAM), sales are looking better than ever. The company reported that the division posted a US$424 million profit for the fourth quarter of 2007, versus a US$76 million profit in the year-ago period. For the full-year 2007, GMLAAM posted a US$1.35 billion pre-tax profit, up significantly from the US$561 million earned in the full-year 2006. This comes despite lower production volumes and market shares in both Brazil and Argentina.

The Asia-Pacific region (GMAP) saw a worsening performance for the fourth quarter of 2007, with income dropping from US$105 million in the fourth quarter of 2006 to US$72 million in the fourth quarter of 2007. For the full year 2007, GM saw profits rise from US$403 million in 2006 to US$744 million in 2007. GM attributes the worsening performance in the fourth quarter to increases in product development costs, necessary to support creation of new programmes and platforms to support global sales. But profitability is up, as is volume, with China volume jumping 22%, according to the company.

The woes at GMAC continue, however, with the American mortgage market meltdown now spilling over into other areas of the economy, leading to significant fears of recession. GM's portion of GMAC's losses came to US$872 million for the fourth quarter, a significant deterioration from the already considerable US$394 million loss seen in the fourth quarter of 2006. For the full-year 2007, GM booked a loss for its 49% share of GMAC at US$1.15 billion, a huge swing from the US$2.21 billion profit it recorded in 2006. GM sold 51% of GMAC to Cerberus Capital Management in late 2006 for around US$14 billion, just before the bottom fell out of the home mortgage market, a significant portion of which involved GMAC's Residential Capital (ResCap) division.

Outlook and Implications

When considered on solely its automotive business, GM is doing well everywhere but North America. For 2007, the company reports that automotive revenue is up 23% in regions outside NAFTA for the fourth quarter, with a total of 40% of revenue and 54% of sales generated outside the region; 61% of sales came from outside the United States. This is starting to affect GM's actions, as it truly becoming a global player that is acting like a global company. With just over one-third of total sales coming from its home United States market, the company's attention is understandably focusing on the global stage. Right now, the revenues and profits from those international operations are the way GM is keeping itself afloat. The "biggest loss in company history" headline that will be the top story of every major American newspaper and website must be looked at in its total context; this is not a monetary loss, and it has not affected GM's operations. That is a book loss—meaning it is an adjustment to the balance sheet to write off tax credits that the company thought it was going to be earning by now, but thanks to struggling business in North America, now looks like will be impossible. Instead of taking those credits, GM needed to adjust its books rather considerably, leading to the US$38 billion loss seen for 2007.

In terms of overall health in North America however, GM seems to be doing well. The true measure of the company's turnaround is not yet evident in its numbers; with hope, that will come in 2008, but given the state of the economy, is not likely until 2009. For North America, all of the company's significant new products have been very well received by the media and the consumer public. The new Chevrolet Malibu mid-size sedan, Cadillac CTS luxury sedan, the range of Lambda-platform crossovers, the new Saturn Vue, have all gained critical acclaim, which is a fairly new achievement for GM in its home market. The results of those gains are still not yet visible however, as all of the models are still fairly new to the market, and GM still has a sizeable percentage of older vehicles which have not yet received the latest and greatest overhaul under the reign of product development guru Bob Lutz.

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