Is The Worst Yet To Come For GM?

[1931Chevy]

Is The Worst Yet To Come For GM?
Posted By:Phil LeBeau

As I wrapped up my vacation and heard that General Motors planned to report second quarter earnings on Friday, I started wondering, "Just how big will the loss be for the quarter?"

Surely, it won't come close to GM's quarterly loss in the third quarter last year totaling more than $38 Billion. But keep in mind, that number was almost entirely due to a non-cash accounting-related charge.

Friday, Wall Street analysts are expecting GM to lose $1.489 billion. If they are right, the loss will be just short of the $1.631 billion GM lost (excluding charges) in that woeful third quarter of 2007. But much has changed since then. And it's the reason many investors are worried about what GM will report Friday. Sales have plummeted, residuals on leases are in the tank, and the American Axle strike in April and May hit the company hard.

I fully expect GM to follow Ford's lead and announce billions in charges as the company continues to rapidly downsize and adjust its operations to a weakening auto market. So the headline number may be a whopper. Nowhere close to the $38.6 billion loss in the third quarter of last year, but big enough to get A LOT of attention. And believe me it will.

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[ksr]

The worst in terms of reporting losses may well be tomorrow. Production cuts = profit cuts.

In terms of market share and good products and a secure future, I think the worst is behind us.

[sigma]

Phil LaBue is one of the best people covering the auto industry on TV these days. It's his beat for CNBC, so Wall Street and the automakers depend on him getting it right day in and day out.

[JVal14]

I think there's a good chance things could get worse. Smaller cars are in much higher demand now, and probably will be for many years to come. GM has never been able to figure out how to mke solid profit off of small cars, and I doubt they suddenly will soon. Also, the ability to globalize is of top imortance for such a large company, and they've only been partially successful in that regard. Lastly, their cash crunch is brutal, and not even because they can burn through cash fast, but because it will be painfully difficult for them to raise more cash: their credit rating is aweful, the credit crunch is in full effect, and they're forced into selling assets at an unfavorable time.

Add to that the ever-present problem of the UAW, convoluted corporate structure, and a mediocre reputation, and the battle looks more and more uphill. In the next five years, we'll either see a dramatically improved, lean-mean General or none at all.

[greenrail]

I suspect we had best be prepared for a rough ride ahead. With all of the Federal Mandates and economic woes, this is not going to be a very pretty picture.

Many ofthe hopes and dreams many enthusiasts have for future vehicles may be victims of the oncoming storm.

It literally scares the heck out of me.

[HotCarNut]

Originally Posted by ksr

Production cuts = profit cuts.

How do you figure? There's no profit in producing a bunch of vehicles that customers and dealers don't want. Just ask Chrysler and the acres upon acres of trucks they had parked all over that made headlines (was it last year or 2006????).

[goblue]

GM had been on track to restructure in 2010, based on $3 gas, and now is being forced to adapt to $4 gas in 2008. Yes, its going to be bad, but no - GM is not going under. Wake me up when Chrysler dissolves. Then I'll start paying attention. They have no class leading vehicles, midsize and economy cars at the bottom of the class, and no real strength outside the US market. And they're still making cars.

[HotCarNut]

I think things are going to get a lot worse in a hurry. GM doesn't have a small car coming out until 2010 when the Cruze, Groove/Trax, and Volt (albeit in very small numbers) appear. Given the demographic shifts that have occurred, and GM's cash bleed, I'm not sure they can survive another 20-24 months waiting for these models. For GM to have any chance, the Cruze needs to come out in the US at the same time as Europe - Spring 2009. Of all of the vehicles on the drawing board, that one has the best chance to "move the needle" for GM as Bob Lutz likes to say. In the meantime, focus your advertising dollars on the Saturn lineup, the Pontiac Vibe and G5, the Malibu, Cobalt, and Aveo, and forget about advertising trucks. It's pretty much GM's only hope to survive until 2010 when the new UAW concessions kick in, the other new small cars arrive, and the Volt comes online.

[megeebee]

Originally Posted by sigma

Phil LaBue is one of the best people covering the auto industry on TV these days. It's his beat for CNBC, so Wall Street and the automakers depend on him getting it right day in and day out.

I agree. I've never sensed bias and I feel he's well informed.

[dindak]

Originally Posted by HotCarNut

I think things are going to get a lot worse in a hurry. GM doesn't have a small car coming out until 2010 when the Cruze, Groove/Trax, and Volt (albeit in very small numbers) appear. Given the demographic shifts that have occurred, and GM's cash bleed, I'm not sure they can survive another 20-24 months waiting for these models. For GM to have any chance, the Cruze needs to come out in the US at the same time as Europe - Spring 2009. Of all of the vehicles on the drawing board, that one has the best chance to "move the needle" for GM as Bob Lutz likes to say. In the meantime, focus your advertising dollars on the Saturn lineup, the Pontiac Vibe and G5, the Malibu, Cobalt, and Aveo, and forget about advertising trucks. It's pretty much GM's only hope to survive until 2010 when the new UAW concessions kick in, the other new small cars arrive, and the Volt comes online.

Cruze will not save GM and the Cobalt is not that bad. Groove is a niche product as is the Volt.

GM needs the economy to improve (as do all the car makers) and need to make the best use of capital to continue to build on recent success like the Malibu and CTS. The American public also needs to give GM another look! Costs also need to keep coming down.

[ANT]

Originally Posted by goblue

GM had been on track to restructure in 2010, based on $3 gas, and now is being forced to adapt to $4 gas in 2008. Yes, its going to be bad, but no - GM is not going under. Wake me up when Chrysler dissolves. Then I'll start paying attention. They have no class leading vehicles, midsize and economy cars at the bottom of the class, and no real strength outside the US market. And they're still making cars.

come to think of it how is chrysler still a around?

[Rick_VT]

[quote=JVal14;1471124]I think there's a good chance things could get worse. Smaller cars are in much higher demand now, and probably will be for many years to come. GM has never been able to figure out how to mke solid profit off of small cars, and I doubt they suddenly will soon. Also, the ability to globalize is of top imortance for such a large company, and they've only been partially successful in that regard. Lastly, their cash crunch is brutal, and not even because they can burn through cash fast, but because it will be painfully difficult for them to raise more cash: their credit rating is aweful, the credit crunch is in full effect, and they're forced into selling assets at an unfavorable time.

The cash burn is definately there biggest problem, it would be great to see some figures to see where GM is spending most of its money so we can all get a better idea on why they lose so much.

As far as the small car problem goes, GM never sold many small cars in the past so they were never really able to amortise costs effectively with large numbers of sales, plus all the legacy costs inbuilt to there cars, my mind still spins at the job bank, but with smaller cars now selling in larger numbers and with all the platform sharing around the world of these smaller platforms GM has a much better chance to make a profit with small cars, especially now much of the legacy costs will be gone soon.

[HotCarNut]

Originally Posted by dindak

Cruze will not save GM and the Cobalt is not that bad. Groove is a niche product as is the Volt.

GM needs the economy to improve (as do all the car makers) and need to make the best use of capital to continue to build on recent success like the Malibu and CTS. The American public also needs to give GM another look! Costs also need to keep coming down.

Cruze won't save GM, but it's the only new small car that GM has coming out that can make a real impact. The Beat/Groove/Trax production car will be a niche product. The Cobalt isn't perceived well, and doesn't sell at the same kind of margins that Honda enjoys with the Civic or Toyota with the Corolla. My hope is that GM knocks the Cruze out of the park on both the manufacturing and customer sides of the fence. Then it will generate profit instead of being a break-even vehicle.

[GM-Joe]

No Big 3 company will avoid bankruptcy unless their entire companies are gutted out.

If any do go bankrupt, they will be gutted out. I guess I can look forward to a future of driving Corollas and CRV's. Nah, I think I I'd rather walk.

[2002 Caddy]

Originally Posted by ksr

In terms of market share and good products and a secure future, I think the worst is behind us.

Someone said exactly that at 29% market share, $20 a share and we still paid a dividend...

"The worst is behind us" probably won't happen until 2010/11