DETROIT, Nov. 7 /PRNewswire/ --
-- Unprecedented economic and credit market turmoil dramatically impacts
auto industry and GM results
-- Market volatility results in $1.5 billion in non-cash charges for
commodity and currency hedging
-- Company anticipates soft U.S. market for remainder of 2008 and into
2009
-- Emerging markets beginning to show impact of credit crisis
Third Quarter
2008 2007* O/(U) 2007
Revenue (bils.): $37.9 $43.7 $(5.8)
Adjusted automotive
earnings before
tax (bils.): $(2.8) $0.1 $(2.9)
Reported automotive
earnings before tax (bils.): $(.95) $(1.6) $.65
Adjusted net income (bils.): $(4.2) $(1.6) $(2.6)
Reported net income (bils.): $(2.5) $(42.5) $40.0
Reported earnings per share: $(4.45) $(75.12) $70.67
Adjusted operating cash
flow (bils): $(6.9) $(2.5) $(4.4)
* 2007 figures reflect continuing operations
General Motors (NYSE: GM) today announced its financial results for the
third quarter of 2008, reflecting rapidly deteriorating market conditions in
the U.S., slowdowns in other mature markets around the world, and continued
losses at GMAC Financial Services (GMAC).
During the third quarter the turmoil in the global credit markets resulted
in the worst financial crisis in more than 70 years. The upheaval has had a
dramatic impact on the auto business in particular, especially in the U.S. and
Western Europe.
Tight credit, rising unemployment, declining income, falling stock
markets, and continuing deterioration in the housing market in the U.S.,
resulted in an abrupt halt in consumer spending, with most consumers exiting
the vehicle market. Many of those still intending to purchase vehicles were
denied financing, or found the cost of financing prohibitive.
'The third quarter was especially challenging for the auto industry.
Consumer spending, which represents close to 70 percent of the U.S. economy,
fell dramatically, and the abrupt closure of credit markets created a downward
spiral in vehicle sales,' said Rick Wagoner, Chairman and Chief Executive
Officer. 'The U.S. government's actions to help stabilize the credit markets
and eventually ease the credit crunch are an essential first step to the
economy's and the auto industry's recovery, but further strong action is
required.'
GM reported a net loss of $2.5 billion or $4.45 per share for the third
quarter, including special items. That compares with a net loss from
continuing operations of $42.5 billion or $75.12 per share in the third
quarter of 2007, which included a non-cash charge of $38.3 billion to
establish a valuation allowance against some of the company's net deferred tax
assets.
On an adjusted basis, GM posted a net loss of $4.2 billion or $7.35 per
share, compared with a net loss from continuing operations of $1.6 billion or
$2.86 per share in the same period last year.
Revenue for the third quarter was $37.9 billion, down from $43.7 billion
in the year-ago quarter, reflecting dramatic sales declines across the
industry driven by unstable market conditions, instability in the credit
markets and dramatic retraction in consumer demand, especially in North
America and Europe.
GM recorded net favorable charges of $1.7 billion for special items in the
third quarter. Included in the charges was a curtailment gain of $4.9 billion
resulting from the UAW Settlement Agreement becoming effective. The
curtailment represents the accelerated recognition of net prior service
credits, largely relating to the 2005 GM UAW healthcare agreement, scheduled
for amortization after January 1, 2010.
The curtailment was recorded because GM's UAW retiree health plan will not
exist after January 1, 2010, and therefore no further basis for deferring
unamortized prior service credits exists beyond that date. The $4.9 billion
curtailment gain was partially offset by a non-cash $1.7 billion settlement
charge related to the elimination of post-65 salaried retiree healthcare
coverage, including the cost of increased pension benefits that were announced
in July as part of GM's operating actions to improve liquidity as well as the
recognition of accumulated deferred losses related to the healthcare plan.
In addition, GM reported charges of $652 million relating to its
commitments as part of Delphi's bankruptcy proceedings, $251 million for
impairment of investments in GMAC, and $641 million in restructuring-related
and other charges. Details on these and all other special items are in the
financial highlights section of this release.
GM Automotive Operations
GM reports its automotive operations and regional results on an earnings-
before-tax basis, with taxes reported on a total corporate basis.
GM recorded an adjusted automotive loss of $2.8 billion ($947 million
reported loss) in the third quarter 2008. The loss compares with adjusted
automotive earnings from continuing operations of $98 million in the third
quarter of 2007 (reported net loss of $1.6 billion).
The results reflect losses in GM North America (GMNA) driven largely by
the U.S. industry volume decline of nearly 20 percent, and shifts in product
mix. In addition, Europe saw rapid auto market contraction, leading to
sharply lower GM Europe (GME) sales volume in the third quarter. GM Asia
Pacific (GMAP) results were down due to commodity hedging charges and
moderating demand in key markets including China, Australia and India. These
losses were partially offset by very strong results in the GM Latin America,
Africa and Middle East (GMLAAM) region.
GM's automotive results in the third quarter include $1.5 billion of expenses
related to mark-to-market changes in the value of GM's commodity and foreign
exchange hedging contracts, due almost entirely to falling commodity prices.
GM sold 2.1 million vehicles worldwide in the third quarter, down 11
percent year over year. Sales in GMNA were down 19 percent compared to third
quarter 2007. GM global market share was 13 percent, down 0.7 percentage
points compared with the third quarter of 2007, due largely to weakness in
North America and Western Europe.
GMNA
Third Quarter
2008 2007 '08 O/(U) '07
Revenue (bils.) $22.5 $26.6 $(4.1)
Adjusted Earnings Before
Tax $(2.3) bil. $(298) mil. $(2.0) bil.
Reported Earnings Before
Tax $(395) mil. $(1.8) bil. $1.4 bil.
GM Market Share 23.4% 24.4% (1.0) p.p.
GMNA revenue and earnings in the third quarter reflect dramatic industry
deterioration and a sharp fall in consumer spending driven by the weak U.S.
economy and a very harsh credit environment. Earnings were impacted by lower
volumes, rapid shifts among U.S. consumers away from trucks and SUVs toward
smaller cars, and unfavorable mark-to-market adjustments on commodity hedging.
GME
Third Quarter
2008 2007 '08 O/(U) '07
Revenue (bils.) $7.5 $8.8 $(1.3)
Adjusted Earnings Before
Tax (mils.) $(974) $(136) $(838)
Reported Earnings Before
Tax $(1.0) bil. $(398) mil. $(602) mil.
GM Market Share 8.9% 9.5% (0.6) p.p.
GME revenue was down 15 percent in the third quarter amid industry-wide
volume declines ranging from 10 to 35 percent in certain major markets
including the U.K., Spain and Italy. Overall GME sales volume was down 12.3
percent year over year, while up 10 percent in Eastern Europe. Earnings were
largely impacted by the lower volumes, and unfavorable mix and negative
pricing. In addition, unfavorable foreign exchange relating to the weakening
of the British pound and the mark-to-market of commodity hedges negatively
impacted earnings. Results were partially offset by favorable structural cost
performance.
GMAP
Third Quarter
2008 2007 '08 O/(U) '07
Revenue (bils.) $4.8 $5.3 $(.5)
Adjusted Earnings Before
Tax (mils.) $(6) $186 $(192)
Reported Earnings Before
Tax (mils.) $(6) $186 $(192)
GM Market Share 6.9% 6.5% 0.4 p.p.
Results in GMAP were impacted primarily by unfavorable mix and negative
pricing. In addition, GMAP results were impacted by unfavorable hedging,
which was largely offset by the favorable foreign exchange impact of exports.
Industry sales for the region were down by 134,000 units or 2.7 percent in
the third quarter. Despite the slowdown, GM reported a 2.6 percent increase
in sales volume, and modest gain in market share. Markets in the GMAP region
are expected to remain soft through the fourth quarter, with further slow
downs anticipated in Australia, China, South Korea and India as the contagion
of the faltering U.S. economy and tightening credit conditions expand to other
regions around the world.
GMLAAM
Third Quarter
2008 2007 '08 O/(U) '07
Revenue (bils.) $5.7 $4.9 $0.8
Adjusted Earnings Before
Tax (mils.) $514 $374 $140
Reported Earnings Before
Tax (mils.) $514 $374 $140
GM Market Share 17.0% 17.4% (.4) p.p.
GMLAAM saw double-digit revenue growth, up 15 percent, and earnings, up 37
percent, in the third quarter, fueled by strong demand for Chevrolet and
Cadillac products. GMLAAM sales volume was up more than 3 percent compared to
the same period last year. Sales were especially strong in key South America
markets, including Brazil, Chile, Ecuador and Peru, each setting all-time GM
quarterly sales records. The region is on track for another year of record
sales, although the effects of the global economic slowdown on credit
availability and consumer behavior are likely to result in some moderation of
demand in the fourth quarter.
GMAC
On a standalone basis, GMAC reported a net loss of $2.5 billion for the
third quarter 2008, down $900 million from the year-ago quarter. GM reported
an adjusted loss of $1.2 billion for the quarter attributable to GMAC, as a
result of its 49 percent equity interest.
GMAC's automotive finance operation experienced pressure from lower used
vehicle prices and weaker consumer and dealer credit performance. GMAC's
ResCap operations reported further losses as a result of adverse market
conditions, which drove high credit-related provisions and weak revenue.
GMAC's Insurance business remained profitable.
Cash and Liquidity
Cash, marketable securities, and readily-available assets of the Voluntary
Employees' Beneficiary Association (VEBA) trust totaled $16.2 billion on
September 30, 2008, down from $21.0 billion on June 30, 2008.
The change in liquidity reflects negative adjusted operating cash flow of
$6.9 billion in the third quarter 2008, driven by the industry-wide slowdown
in vehicle demand and compounding credit crisis, especially in North America
and Europe. During the quarter, GM drew the remaining $3.5 billion of its
secured revolving credit facility and made $1.2 billion in payments to Delphi
as required by agreements between the companies as part of Delphi's bankruptcy
proceedings.
GM expects adjusted operating cash flow in the fourth quarter to be much
improved versus the third quarter, and more consistent with the first half of
the year. Improvements in fourth quarter cash flow are largely driven by
anticipated improvements in working capital in North America relating to sales
allowances, and lower fourth quarter finished vehicle inventory in Europe.
Improving its liquidity position remains a top priority for the company.
In response to deteriorating market conditions, GM announced today that in
addition to the $15 billion in liquidity initiatives it outlined in July 2008,
it has identified $5 billion of incremental liquidity actions. Cumulatively,
GM has announced actions aimed at improving liquidity by $20 billion through
2009. To date, $10 billion in internal operating actions have either already
been completed or are on track for full execution by the end of 2009.
Even if GM implements the planned operating actions that are substantially
within its control, GM's estimated liquidity during the remainder of 2008 will
approach the minimum amount necessary to operate its business. Looking into
the first two quarters of 2009, even with its planned actions, the company's
estimated liquidity will fall significantly short of that amount unless
economic and automotive industry conditions significantly improve, it receives
substantial proceeds from asset sales, takes more aggressive working capital
initiatives, gains access to capital markets and other private sources of
funding, receives government funding under one or more current or future
programs, or some combination of the foregoing. The success of GM's plans
necessarily depends on other factors, including global economic conditions and
the level of automotive sales, particularly in the United States and Western
Europe.
Further detail on the additional liquidity actions and GM's current
liquidity position and outlook will be disclosed in a Form 8-K filing with the
Securities and Exchange (SEC) later today.
Forward Looking Statements
In these and following presentations and in related comments by General
Motors management, we will use words like 'expect,' 'anticipate,' 'estimate,'
'forecast,' 'objective,' 'plan,' 'goal,' 'project,' 'outlook,' 'targets,' and
similar expressions to identify forward looking statements that represent our
current judgments about possible future events. We believe these judgments
are reasonable, but actual results may differ materially due to a variety of
important factors.
Among other items, such factors include: our ability to maintain adequate
liquidity and financing sources and an appropriate level of debt; continued
economic instability or poor economic conditions in the U.S. and global
markets, including the credit markets, or changes in economic conditions,
commodity prices, housing prices, currency exchange rates or political
stability in the markets in which we operate; our ability to realize
production efficiencies, to reduce costs and implement capital expenditures at
levels and times planned by management; market acceptance of our products
including cars and crossovers; shortages of and price increases for fuel; the
ability of our customers, dealers, distributors and suppliers to obtain
adequate financing on acceptable terms to continue their business
relationships with us; significant changes in the competitive environment,
including as a result of industry consolidation, and the effect of competition
on our markets, including on our pricing policies or use of incentives;
changes in the existing, or the adoption of new laws, regulations, policies or
other activities of governments, agencies and similar organizations where such
actions may affect the production, licensing, distribution or sale of our
products, the cost thereof or applicable tax rates; the effectiveness of
recent or future actions by the U.S. federal government, including the $25
billion loan program for automobile manufacturers and suppliers and recently
enacted legislation relating to mortgage assets; costs and risks associated
with litigation; the final results of investigations and inquiries by the SEC;
changes in accounting principles, or their application or interpretation, and
our ability to make estimates and the assumptions underlying the estimates,
including the estimates for the Delphi pension benefit guarantees, which could
result in an effect on earnings; negotiations and bankruptcy court actions
with respect to obligations owed to us by Delphi Corporation, a key supplier
and our obligations to Delphi; negotiations with respect to our obligations
under the benefit guarantees to Delphi employees and our ability to recover
any indemnity claims against Delphi; labor strikes or work stoppages at our
facilities or our key suppliers such as Delphi or financial difficulties at
our key suppliers such as Delphi; additional credit rating downgrades and the
effects thereof; changes in relations with unions and employees/retirees and
the legal interpretations of the agreements with those unions with regard to
employees/retirees, including the negotiation of new collective bargaining
agreements with unions representing our employees in the United States other
than the UAW; possible downgrades for GMAC or ResCap by rating agencies;
GMAC's ability to maintain adequate financing sources; developments in the
residential mortgage market, especially the nonprime sector; and changes in
the competitive markets in which GMAC operates, including increased
competition in the automotive financing, mortgage and/or insurance markets or
generally in the markets for securitizations or asset sales.
GM's most recent annual report on Form 10-K and quarterly report on Form
10-Q provide information about these factors, which we may revise or
supplement in future reports to the SEC on Form 10-Q or 8-K.
General Motors Corporation
Use of Non-GAAP Financial Measures
This press release, the accompanying tables and the charts for
securities analysts include the following financial measures, which are
not prepared in accordance with Accounting Principles Generally Accepted
in the United States of America (GAAP): (1) adjusted net income; (2)
adjusted earnings before tax; (3) managerial cash flow; and (4) GM North
America vehicle revenue per unit. Each of these financial measures is
therefore considered a non-GAAP financial measure. This press release and
the charts for securities analysts also contain a reconciliation of each
non-GAAP financial measure to its most comparable GAAP financial measure.
Management believes these non-GAAP financial measures provide
meaningful supplemental information regarding GM's operating results
because they exclude amounts that GM management does not consider part of
operating results when assessing and measuring the operational and
financial performance of the organization. In addition, GM has
historically reported similar non-GAAP financial measures and believes
that inclusion of these non-GAAP financial measures provides consistency
and comparability with past earnings releases. GM management believes
these measures allow it to readily view operating trends, perform
analytical comparisons, benchmark performance among geographic regions
and assess whether the GM North American structural cost turnaround plan
is on target. Also, GM management uses adjusted net income and adjusted
earnings before tax for forecasting purposes and in determining future
capital investment allocations. Accordingly, GM believes these non-GAAP
financial measures are useful to investors in allowing for greater
transparency of supplemental information used by management in its
financial and operational decision-making.
While GM believes that these non-GAAP financial measures provide
useful supplemental information, there are limitations associated with
the use of these non-GAAP financial measures. These non-GAAP financial
measures are not prepared in accordance with GAAP, do not reflect a
comprehensive system of accounting and may not be comparable to similarly
titled measures of other companies due to potential differences in the
method of calculation between companies. Costs such as the special
attrition programs and restructuring charges that are excluded from GM's
non-GAAP financial measures can have a material effect on net earnings.
As a result, these non-GAAP financial measures have limitations and
should not be considered in isolation from, or as a substitute for, net
earnings, cash flow from operations, or other measures of performance or
liquidity prepared in accordance with GAAP. GM compensates for these
limitations by using these non-GAAP financial measures as supplements to
GAAP financial measures and by providing the reconciliations of the non-
GAAP financial measures to their most comparable GAAP financial measures.
Investors are encouraged to review the reconciliations of these non-GAAP
financial measures to their most comparable GAAP financial measures that
are included elsewhere in this press release.
Adjusted Net Income and Adjusted Earnings Before Tax
Adjusted net income excludes charges for certain tax related items,
gains and losses on the sale of business units and business interests,
charges associated with accounting changes, restructuring, plant closure
and impairment charges, charges associated with Delphi Corporation
(Delphi), special attrition program charges, and other gains and losses
which management excludes when assessing the internal performance of the
organization.
Adjusted earnings before tax begins with adjusted net income and is
adjusted to remove any remaining tax expense or benefit.
General Motors Corporation
Use of Non-GAAP Financial Measures (Continued)
The following is a discussion of each adjustment to net income or loss
determined in accordance with GAAP to arrive at adjusted net income and
adjusted earnings before tax, as applicable:
- Tax charges. Charges associated with establishing valuation allowances
on GM's deferred tax assets are excluded from adjusted net income. In
addition, other tax related items may be periodically excluded from
adjusted net income. Management believes the exclusion of these tax
charges from adjusted net income is useful because management does not
consider these charges part of GM's core earnings in evaluating the
performance of the business and excludes these costs when evaluating
the performance of the Corporation, its business units and its
management team and when making decisions to allocate resources among
GM's business units.
- Gains and losses on the sale of business units and business interests.
The gains and losses on the sale of business units and business
interests are excluded from adjusted net income and adjusted earnings
before tax. While GM is involved in sales of its business units and
business interests from time to time and may have significant gains or
losses from such sales in the future, such events have historically
occurred sporadically. Management excludes the gains and losses
associated with these events when it evaluates the Corporation's
operations and for internal reporting and forecasting purposes and for
allocation of additional resources.
- Changes in accounting. Non-GAAP financial measures exclude charges
associated with changes in accounting. Management believes the
exclusion of changes in accounting from adjusted net income and
adjusted earnings before tax is useful because management does not
consider these non-recurring charges part of GM's core earnings.
Accordingly, management excludes such costs when evaluating the
performance of the Corporation, its business units and its management
teams and when making decisions to allocate resources among GM's
business units.
- Restructuring, plant closure charges and impairments. Non-GAAP
financial measures exclude exit costs and related charges, primarily
consisting of severance costs, lease abandonment costs, product
specific asset impairments, any subsequent changes in estimates
related to exit activities and goodwill and other asset impairment
charges. Management believes the exclusion of restructuring and
impairment charges from adjusted net income and adjusted earnings
before tax is useful because management does not consider these costs
part of GM's core earnings in evaluating GM's management teams and the
exclusion permits investors to evaluate the performance of GM's
management the same way management does. Additionally, management
excludes restructuring and impairment charges in determining the
allocation of resources, such as capital investments, among the
Corporation's business units and as part of its forecasting and
budgeting.
- Delphi charges. Non-GAAP financial measures exclude the estimated
charges associated with the benefit guarantees and comprehensive
settlement agreements entered into with Delphi in connection with the
restructuring of Delphi's operations. Management does not consider
these costs as part of its core earnings for purposes of evaluating
the performance of the business, and excludes such costs when
evaluating the performance of the Corporation, its business units and
its management teams and when making decisions to allocate resources
among GM's business units.
- Special attrition program charges. Non-GAAP financial measures exclude
the estimated charges associated with: (1) the 2008 special attrition
program agreements between GM and the International Union, United
Automobile, Aerospace and Agricultural Workers of America (UAW) and GM
and the International Union of Electronic, Electrical, Salaried,
Machine and Furniture Workers (IUE-CWA) (collectively, 2008 Special
Attrition Programs); and (2) the 2006 special attrition program
agreement among GM, the UAW and Delphi (2006 Special Attrition
Program). Management believes it is useful in evaluating the
performance of GM, its management teams and its business units during
a particular time period to exclude charges associated with special
attrition programs. Accordingly, management does not consider these
costs as part of its core earnings, and excludes such costs when
evaluating the performance of the Corporation, its business units and
its management teams and when making decisions to allocate resources
among GM's business units.
- Salaried post-65 healthcare settlements.
