Sunday, August 3, 2008

$15.5 Billion of Losses with More to Come

Do you remember when one million dollars seemed like a lot of money? Reading the business headlines these days one million dollars truly feels like a drop in the ocean, especially when those numbers are referring to corporate losses. On Friday, GM reported a quarterly loss of $15.5 billion. A QUARTERLY loss of $15.5 BILLION on total revenue of $38 billion. Am I the only one out there that asks, how is that possible? The reported loss per share was $27.33 on a stock price of $10.

So how exactly do you lose $27 billion dollars in a quarter? First of all you take a long list of one time charges and hope they do not become more time charges. This quarter the total came to $9.1 billion, including $3.3 billion for the buyouts of 19,000 US hourly workers. Now if you have a calculator that goes that high you will quickly figure out that that is over $170,000 per person. Is this really the end of their problems with human capital challenges? We are likely to see more one -time charges to come only for a different 19,000 workers.


They also booked $2 billion worth or write-offs related to “drops in the value of pickup trucks and SUVs coming back to the company after their lease term ends.” Ouch. I guess $4.00 gas is leading some to change their consumption behavior. Good for them, bad for GM. But $2 billion in one quarter? What about next quarter? This problem is not going away.

Another $1.3 billion went to write-offs due to a reduction in the value ofGM’s interest in its former financial arm, GMAC.

If you eliminate the entire one -time charges they still lost $6.3 billion or $11.21 per share. So let’s think about that on an operating basis. What the numbers are saying is that in order for GM to just break even in a more or less steady state they need revenues of about $45 billion, quarterly. I am no equity analyst but I think that is going to be hard to do given that people do not seem to be buying too many cars, and especially not the gas guzzling ones that are GM’s specialty. Speaking of equity analysts, the associated press reported that of twelve analysts surveyed by Thomson Financial the average prediction was a loss of $2.62 per share. That is only off by a multiple of 10. Excuse me, but aren’t these people paid to know what is going on in their companies?

One of the many questions I was left with after reading the earning reported is how in the world are they not already bankrupt? Where is the cash coming from? According to the same report they burned through $3.6 billion in the second quarter.

Years ago, and I mean years ago, by husband said GM was going to go under and he shorted the stock. No not at the 2000 high of $93, but in the 30’s. He watched in pain as the stock rose north of 50, and finally covered the short in the 20s after hearing way too much about it from your truly. Now as it looks headed below $10 I am hearing a lot of I told you so’s.

By the way… he also thinks GOLD is going to $1200.

(info on GM's quarter from the Associated Press as reported in the Kelowna Courier)


2 comments:

Kathy LeMay said...

First, go Greg!

I decided to randomly google GDP of a country in the Global South, Somalia. This is a country of just shy of 10 million people. Their GDP is $5B, 1/3rd of what GM lost in one quarter of a year.

Is their a valuation for absurdity?

Seems that multi-national companies that lose small country economies in the span of three months may not fully appreciate the value of the dollar or euro or zen. Wonder if they will unleash a monetary pendulum shift and currency will begin to lose its real- and actual- value?

Deborah Siegel said...

Just caught up on all things Purse Pundit from this last month -- Greg = prescient. Loved the post from Frank. And I agree with you PP, NYC airports are the PITS!