GM’s $39 Billion Loss Isn’t Quite That Bad

General Motors reported a $39 billion loss for its third quarter of 2007 on Wednesday. That makes it the third biggest quarterly loss by a corporation in American history. GM’s stock fell about 6% on the news. However, it really isn’t as bad as it sounds.

The GM loss is third after AOL Time Warner's $54.2 billion loss for first quarter of 2002 and the $41.8 billion first-quarter loss JDS Uniphase reported in 2001. Yet, GM didn’t actually lose this vast sum. Rather, as GM’s press release said, “Special items included a net non-cash charge of $38.6 billion due to a valuation allowance against deferred tax assets related to operations in the US, Canada and Germany as required under SFAS No. 109, Accounting for Income Taxes.” The key here is “non-cash.” It was a change in the stock market’s valuation of the Company and not a hemorrhage of real dollar bills.

If one ignores the special charges, “GM had a 2007 third-quarter adjusted net loss of $1.6 billion, or $2.80 per diluted share, compared to net income of $497 million, or $.88 per diluted share, in the year-ago quarter. The variance was driven primarily by a significant decline in net income at GMAC, as well as increased corporate expense related to legacy cost, foreign exchange and various 2006 tax benefits, partially offset by improved performance in automotive operations.” A $1.6 billion loss still hurts, but it isn’t anything like $39 billion.

Also the press release said, “As a standalone company, GMAC Financial Services reported a net loss of $1.6 billion for the third quarter 2007.” It also read, “Results [for GMAC] were dominated by the effects of the dislocation in the mortgage and credit markets on the real estate finance business, which more than offset the continued strong performance at GMAC’s automotive finance, insurance and other operations.”

The core business, then, is not too badly off. Nevertheless, Toyota, which reported its results on Wednesday as well, turned a $3.94 billion profit for the quarter. There’s still a difference between “not too badly off” and being profitable.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

Home