GM Reports Third Quarter Financial Results

  • 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.

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