Times are tough for General Motors Corp., and the mortgage mess isn’t helping.
The world’s biggest carmaker on Tuesday reported a $38.7-billion loss in 2007, a record for any auto manufacturer, after a poor fourth quarter that was made weaker by sliding U.S. sales and exposure to risky mortgage investments.
The massive loss was largely attributable to a third-quarter write-down of tax credits amounting to $39 billion. Excluding the write-down and other one-time charges, GM said it lost $23 million on the year.
The company has not had a full year in the black since 2004. As part of its quest to return to profitability, GM on Tuesday announced a new round of buyouts aimed at reducing costs.
In 2007, the Detroit giant managed to maintain -- by a thread -- its title as the world’s largest seller of automobiles, but saw its sales in the U.S. slip by 5.9%. For the fourth quarter, GM posted a net loss of $722 million, or $1.28 a share, compared with net income of $950 million, or $1.68 a share, a year earlier.
The decline in domestic sales, combined with huge mortgage-related losses from GM’s large stake in lender GMAC, overshadowed some good news: increasing international sales and overall rising revenue. Fourth-quarter revenue was $46.7 billion, up 7% compared with the same period in 2006. Revenue for the year was $178 billion, up $7 billion, or 4%, from 2006.
“We’re pleased with the positive improvement trend in our automotive results, especially given the challenging conditions,” GM Chairman and Chief Executive Rick Wagoner said. “But we have more work to do to achieve acceptable profitability and positive cash flow.”
Of particular concern are North American operations, where GM lost $1.1 billion on the quarter, considerably above analysts’ expectations of a $400-million shortfall.
“I was frankly taken aback by the size of that loss,” said David Healy, an analyst at Burnham Securities, who says he expects sales to continue trending down for at least the first half of 2008 as consumers, cut off from lines of credit by declining home values and tighter lending standards, put off car purchases.
“People are afraid to buy cars or can’t afford financing,” Healy said. “GM will be losing the marginal customer because of the mortgage crisis.” Those pressures were already evident in the U.S. market last year, when total sales for all makers declined 2.5% to 16.1 million cars and light trucks. This year, sales are expected to fall below 16 million.
The story is significantly different overseas, where cars are a growth industry in most regions. In Latin America, Africa and the Middle East, GM made $424 million in the fourth quarter, and in Asia it earned $72 million. Worldwide sales for GM increased 3% in 2007, and for the third consecutive year, the majority of its sales were in markets other than the U.S.
GM’s woes did not escape notice in Washington, where White House Press Secretary Dana Perino on Tuesday addressed the company’s financial results. “The report from GM reflects what we’ve known for a long time, which is that the automotive industry in the United States is having some difficulties,” she said. “They are trying to work through those.”
A key is cost reduction. After several rounds of buyouts, GM has reduced its United Auto Workers staffing to 74,000. It will now offer those workers additional buyout packages, including payments of as much as $62,500 for those who retire early and $140,000 for those who agree to also surrender all future healthcare and pension benefits.
Under terms of the UAW contract reached last fall, GM can replace departing workers making an average of $28 an hour with laborers earning much less -- as little as $14 an hour. Those savings, as well as others from the establishment of a UAW-managed benefits fund, are expected to save GM billions of dollars a year starting in 2010.
Perhaps more difficult to address is GM’s exposure to the mortgage crisis. Lender GMAC, 49% owned by GM, reported a $724-million loss for the fourth quarter, largely by its troubled ResCap mortgage lending division. GM booked a $394-million pretax loss for the quarter and $872 for the year from its piece of GMAC
Shares in GM slid 52 cents, to $26.60, in trading on the New York Stock Exchange.