GM's Latest Setback

Today's Wall Street Journal, entitled "GM Turnaround Shown Off-Track," carries an article discussing GM's announcement, yesterday, that it is taking a $38.6B write down of a tax benefit. The importance of the write off is captured in this passage from the Journal article,

"GM's persistently weak financial performance prompted the company to take the big write-down for what are known as net deferred tax assets. They stem from past losses and can be used to offset taxes incurred on current or future profits for a certain period of years. In writing them down, the company is essentially saying it may be unable to use them because it isn't clear that the company will return to black ink in the near term."

Regarding GM's results being received by investment analysts, the article reported,

"GM's results surprised many analysts because it had appeared to be making progress in stemming its losses, and its global automotive operations were profitable in the first half of the year, helped in part by some hot models like the Buick Enclave and GMC Acadia, new seven-passenger vehicles. The company is finding it can't cut costs fast enough to offset declining industry sales in its core North American and European markets and can't sell assets fast enough to cover the cash it is using up."

As I wrote in prior posts, here, here, and, more recently, here, I don't believe GM will successfully execute a "turnaround" with its current management team. Particularly, with CEO Rick Wagoner remaining at the helm of the ailing auto maker.

The fact is that GM just lost $39B this past quarter. The face that I watched Rick Wagoner try to put on this appalling loss, in an early morning CNBC interview with correspondent Phil LeBeau, was that it is a non-cash charge that has no real meaning for investors. Skipping over the implicit acknowledgement that removing the asset from GM's balance sheet means the firm has no expectation of returning to profitability anytime soon, Wagoner attempted to paint a rosy picture of the firm's recent UAW contract, and longer term future.

As the Journal pointed out,

"The big loss occurred even after GM cut tens of thousands of jobs in North America and Europe, launched a volley of new models and boosted revenue in the quarter to $43 billion, a record level."

Wagoner admitted that North American sales are slow and headed down. When pressed by Becky Quick on when investors might see profits again, Wagoner launched into a long, deliberately-obfuscating response that avoided giving her an estimate of that date.

As I reflect on the last few weeks in American business, I wonder why anyone bothers to interview CEOs of troubled companies at all?

Between Stan O'Neal's and Chuck Prince's lack of candor all year long, you have to wonder if any embattled CEO is going to be honest about his and his company's troubles. A face to face interview on CNBC or Fox Business Channel is just an opportunity to engage in damage control. Truth is to be rationed, and high spirits, plus a 'can do' attitude, are to be paraded before the audience of analysts potential investors.

I think I'd prefer to view a good discussion by a panel of relevant, experienced observers of a troubled company than be painfully subjected to the propaganda dished out by the CEO of a GM, GE, etc., via live interview, as to why their own numbers are irrelevant, and their company's future will certainly be bright and profitable, come what may.

After all, the history of Prince's and O'Neal's statements all year long, and Wagoner's for years, have all belied the actual fundamental operating performances of their firms this year, haven't they?