GM posts one of its biggest quarterly losses ever

Aug 02, 2008 (The Kansas City Star - McClatchy-Tribune News Service via COMTEX) -- GM | Quote | Chart | News | PowerRating -- Aug. 2--General Motors Corp. suffered one of the worst three-month periods in its history, losing $15.5 billion in the second quarter.

GM's losses reflected weak sales hurt by the slumping economy and high gasoline prices, costs from strikes and buyouts, and the declining asset values of big trucks and SUVs.

The quarterly loss of $27.33 a share was GM's third biggest ever. The biggest came in 2007's third quarter, when GM posted a $38.6 billion net loss.

The automaker said the $15.5 billion in losses included $9.1 billion in one-time charges, including $3.3 billion for nearly 19,000 workers who took early retirement or cash buyouts in the quarter. Liabilities related to Delphi Corp., a parts supplier and former GM subsidiary that took bankruptcy, led to a $2.8 billion charge.

GM also took a $197 million charge for the long strike at a big supplier, American Axle and Manufacturing Holdings Inc. That affected production at more than 30 GM plants before GM agreed to help fund worker buyouts and resolve the dispute.

Excluding charges, GM lost $6.3 billion, or $11.21 a share, on $38.2 billion in revenues. Analysts on average were predicting a loss of $2.62 a share on $44.6 billion in sales.

And the worst isn't necessarily past. GM may offer another round of voluntary separation packages to hourly workers because of the accelerated closures of four plants announced this summer, said GM's chief financial officer, Ray Young. The company also is laying off 15 to 20 percent of its salaried employees in the United States and Canada.

One industry observer said GM is now swallowing a bitter pill after underestimating its problems for several years, something it can no longer do as $4-a-gallon gasoline quickly shifts consumer tastes to cars from pickups and SUVs.

"I think GM will get through this, but it's going to be a very difficult time for the company," said Gary Chaison, industrial relations professor for Clark University in Worcester, Mass. "They fooled themselves a few years ago into thinking this was just an adjustment period, when evidence has shown a major restructuring was needed."

The era of GM's dominance as a corporation and the world's biggest car company is history, Chaison said.

"It's kind of a reversal of the idea that bigger is better in the auto industry," Chaison said, "but GM can be profitable by being a smaller and more flexible company."

The company is definitely shrinking. Revenues were down 18 percent compared with the 2007 second quarter, and GM said last month that it would cut production by an additional 300,000 vehicles in the second half of the year. The automaker had 113,000 hourly employees in 2006. That figure is down now to 55,000.

Amid all the cuts, the GM Fairfax plant in Kansas City, Kan., has continued to do well, producing the popular Chevrolet Malibu as well as the Saturn Aura. The plant has been on an overtime schedule and last week was recognized by GM for two quality awards from a recent J.D. Power and Associates study.

The Fairfax plant also was one of two GM facilities that went on strike over local issues in the second quarter. Despite the 17-day walkout, United Auto Workers Local 31 negotiators were able to keep seniority rights in place and prevent excessive outsourcing. The Fairfax plant has about 2,670 workers, including more than 2,400 hourly employees.

Despite the big quarterly loss and GM burning through $7 billion in cash through the first half of the year, Young said the automaker continues to hold a healthy financial position. The company has $21 billion in cash and available credit lines on June 30 of $5 billion, he said.

Although its net losses have exceeded $50 billion since 2005, GM chairman and chief executive Rick Wagoner said the company has the right plan in place.

"As our recent product, capacity and liquidity actions clearly demonstrate, we are reacting rapidly to the challenges facing the U.S. economy and auto market, and we continue to take the aggressive steps necessary to transform our U.S. operations," he said in a news release.

GM's stock dropped 7.6 percent on Friday, closing at $10.23 a share.

The Associated Press contributed to this report.

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