Friday, February 25, 2011

GM's Misleading Results

I read this headline, GM Rebounds With Best Year Since 1999, in a section of this morning's Wall Street Journal, with great amusement.

Does anyone really believe the concept implied by this headline? That it's the same GM? Or that, if you think it is the same company, these results are either comparable or real, in the sense of being the result of completely normal business and accounting practices?

Because of course, they are not.

First, this GM exited a federally-distorted bankruptcy. It's not relevant to compare any of this GM's performances to the company with that name which existed prior to 2009.

Second, this GM is the beneficiary of some significant liability restructuring, as well as purchasing preferences by the federal government. From union concessions, related capital structure changes, and federally-mandated dealership closings to atypical tax loss carry-forwards, this bankruptcy was one for the record books. In an ideal capitalist world, GM wouldn't even exist anymore, unless someone bought the right to use the name again. Which would be unlikely, since it had become a symbol of corporate ineptitude, failure, and union excess.

Third, one year does not a turnaround make. Even the Journal article disclosed that the fourth quarter performance was relatively weak.

Sadly, the new GM seems to be just the latest example of the concept that everybody wins. Even a bankrupt corporate failure like GM is given special dispensations, favors and a tilted playing field so that its latest results may be celebrated as a record.

Don't be confused by this accounting magic and think it portends a healthy future in which GM earns consistently superior total returns for years to come.

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