GM's Latest Setback- Updated For 2008

Is it a new model year yet? Does Detroit even have them anymore?

If they did, it would be a great time to showcase your new, updated, downgraded 2008 General Motors Company! Driven further into decline by that devil-may-care hotshot, Riiiiiiiick Waaaagoner!

Yesterday's Wall Street Journal featured an article in the Marketplace Section, headlined thusly,

"Huge Loss Dents GM's Hopes for a Turnaround"

Those newspaper guys. They have to go for the cutesy turn of a phrase. "Dents GM's hopes" indeed.



The real news, of course, is that this marks yet another big step down the road of mediocrity, toward bankruptcy, for the now-perennially-ailing US carmaker. Following on the bad news only last November, about which the Journal reported, and I posted, here, writing,

"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."

The last six months have been another rollercoaster ride for GM shareholders, as the nearby Yahoo-sourced price chart of the company and the S&P500 Index illustrates.


About the time of GM's November travails, the brief uptick in the stock price ended, and it slid all the way through last month. It's almost become a timing vehicle.

Looking back two years, as this next chart does, shows that GM performed pretty much the same over that timeframe, too. It outpaced the index for much of the period, but the late-2007 downturn pulled it all the way back to parity with the S&P by year's end.

When we examine the five-year chart of GM and the S&P500 Index, the picture is quite different.

The recent 'recoveries' become just volatile investor reactions to GM's and Wagoner's attempts to halt the company's stock's long slide toward bankruptcy.

Yesterday's Journal article noted,

"In a fresh sign that its turnaround plan is sputtering, General Motors Corp. yesterday reported a $722 million fourth-quarter loss, to end the year a staggering $38.7 billion in the red -- believed to be the largest annual loss ever by an auto maker.

In the past three years the company has lost nearly $50 billion, more than all the profit it made in the preceding decade.

GM's latest quarterly loss came even though the company is showing signs of progress in certain areas. New models like the redesigned Chevrolet Malibu and growth overseas lifted the company's automotive revenue. Fixed costs in 2007 were $9 billion lower than in 2005.

But those improvements are being wiped out by other factors such as a softer U.S. car market and higher material costs."

So much for Wagoner's latest bid to turn the ailing auto giant around. The article goes on to observe,

"Meanwhile, GM's full-year 2007 loss of $38.7 billion in large part reflects a huge loss in the third quarter because it removed from its balance sheet certain tax credits it could only keep if it expected to become profitable soon."

This is what caused another sizable loss in November of last year, just one quarter ago. Failure to assure reasonably near-term profitability meant then, as now, the elimination of tax loss carry-forwards. This is a loss, make no mistake about it. It's not just some paper accounting entry. Had GM been able to forecast profits in the near future, that $39B credit would have shielded profits from tax.

With this as a backdrop, the Journal piece concludes,

"Chief Executive Rick Wagoner, 55 years old, now faces a monumental task in trying to turn GM around. After losses began piling up in 2005, Mr. Wagoner had to fight to keep his job when billionaire investor Kirk Kerkorian bought a stake in the company and placed a trusted adviser on GM's board. Mr. Kerkorian eventually gave up and sold his stake.

But as Mr. Wagoner heads into 2008, most analysts expect the company to lose money for a fourth year in a row. Most forecast U.S. auto sales this year at about 15.5 million to 16 million, which would be the lowest in a decade. GM may also have to take further Delphi-related charges."

Can it really be almost two years ago that Wagoner fought off Kerkorian and Toyota's Goshn? Thus, that two-year price chart reflects how bitter GM shareholders' disappointments must be with the ultimately flat performance of the stock since Wagoner fended off those potential saviors.

About the only good thing shareholders might celebrate was a relative rise in the stock price during the period, at which they could at least sell out before last year's bad news.