1. K
DETROIT FREE PRESS | WWW.FREEP.COM WEDNESDAY, FEB. 13, 2008 11A
America is causing some ana-
lysts to reevaluate where the au-
tomaker stands in its turn-
around and examine how the
company might really fare in the
tough U.S. economy this year.
Consumers haven’t been much
in the mood to buy new cars and
trucks with a housing and credit
crisis underfoot.
“Something’s happening that
continues to erode GM’s earn-
ings power faster than the re-
structurings can offset,” Peter
Nesvold, an auto analyst with
Bear Stearns, told the Free
Press.
HesaidthatseemstoputGM,
and Detroit’s auto industry,
“stuck in restructuring mode”
until it can achieve some more
meaningful improvement.
Much of the retiree health
care savings from the new UAW
contract don’t really kick in until
2010, and investors are getting
impatient.
GM shares fell 52 cents, or
1.9%, on Tuesday to close at
$26.60.
The automaker also an-
nounced on Tuesday a new,
beefed-up buyout program to
get an undisclosed number of
workers to voluntarily take
themselves off the payroll,
among other actions.
Much of GM’s loss — a whop-
ping $38.3 billion of it — was the
result of a complicated noncash
accounting charge that does not
exactly relate to the fundamen-
talsofthecompany’soperations.
Excluding those special
charges, GM posted a much
smaller pretax loss of $1.4 billion
for the year, compared with a
pretax profit of $628 million a
year ago.
GM’s deterioration in operat-
ing results wasn’t the fault of
sales.
The automaker’s sales in-
creased 3%, or 277,000 units, to
9.4 million vehicles last year,
making it the second-best sales
year in GM history. That, along
with favorable currency ex-
changes, helped GM’s core auto-
motive business generate rec-
ord revenue of $178 billion, a $7-
billion improvement from the
prior year.
Rather, GM’s poor perfor-
manceinpretaxadjustedresults
fell on the shoulders of GM’s
North America division for the
United States, Canada and Mex-
ico. GM North America posted
an adjusted pretax loss of $1.5
billion last year.
Much of that performance
was explained by three factors:
lower demand, big incentives on
vehicles such as the Chevrolet
Silverado and a tough closeout
for 2007.
In the fourth quarter alone,
results for GM North America
deteriorated by $931 million.
“They had to start giving
away pickups,” explained David
Healy, an automotive analyst
with Burnham Securities.
That contributed to poor
fourth-quarter results on the
corporate level.
In the fourth quarter, GM
posted adjusted net income of
$46 million, or $0.08 a share. Ex-
cluding a big tax benefit, though,
the automaker posted a $1.6-bil-
lion loss.
In the fourth quarter of 2006,
GM posted adjusted net income
of $180 million, or $0.32 a share.
The net loss for the quarter
was$722million,comparedwith
a profit of $950 million in the
fourth quarter of 2006.
Wall Street disappointed
Given that GM has cut $9 bil-
lion in structural costs out of its
operations since 2005, Wall
Street had been expecting
much, much better results.
Jonathan Steinmetz, an auto
analyst with Morgan Stanley,
called the results “very weak …
significantly worse than expect-
ed.”
What’s more, several experts
noted, the performance was on
the back of two of GM’s most im-
portant vehicle platforms — one
for its full-size pickups and
SUVs, which underlie the new
Chevrolet Silverado, and the
other a new crossover platform,
which underlies the Buick En-
clave.
“The product cadence does
start to slow from here,” Nes-
voldnoted,“andthatwillmakeit
more difficult for them, unless
demand starts to rebound.”
Healy said he was shocked by
GM’s performance in the fourth
quarter, but he still believes GM
can return to profitability in
2009.
GM, he noted, has about $30
billion in cash to help it get to
2010, which is when GM gets a
big — $4-billion to $5-billion —
liftfromitsnew4-yearlaborcon-
tract with the UAW.
Buyout incentives raised
While GM will release more
details on its buyout program in
the weeks ahead, most of those
who accept a deal are expected
to leave by July 1, the company
said.
GM’s new program seems to
mirror one announced by Ford
Motor Co. last month. Ford is
hoping to get 8,000 of its hourly
workers to take a deal.
GM won’t say how many
workers it hopes to shed. But
economist Sean McAlinden of
the Center for Automotive Re-
search said last month that un-
der its new contract with the
UAW, it could replace up to
20,000 workers doing non-as-
sembly jobs with new employees
whowillbepaidhalftheoldwage
of $28 per hour.
GM had been offering buy-
outs to about 5,200 UAW work-
ers at service and parts opera-
tions and some closed plants
since December, but those
workers now are eligible for the
new, sweetened offer, which
raises the incentive payments
for retirement-eligible workers
by $10,000 for production work-
ers and $27,500 for skilled work-
ers.
Production workers will be
offered $45,000 and skilled
workers will be offered $62,500
to retire with their full pension
andhealthbenefits.Thosework-
ers can take the money in a
lump-sum payment or take it as
monthly payments. They also
can roll the money directly into a
retirement account or 401(k).
GM is giving less than Ford,
which is offering up to $70,000
in lump-sum payments, but GM
said its offer is comparable be-
cause workers who roll the mon-
ey into a retirement account
won’thavetopayasmuchintax-
es.
Contact SARAH A. WEBSTER at
313-222-5394 or
swebster@freepress.com.
GM R Automaker posts its worst results
From Page 1A
Detroit Free Press
Stock price
Source: Free Press research
General Motors Corp.
Net sales (in billions)
0
10
20
30
40
50
$60
4Q 1Q 3Q2Q 3Q 4Q
2005 2006 2007
1Q 2Q 4Q
$47.1 Net income/loss (in billions)
20
25
35
$45
40
30
20082007
A S O N D JM MA J J F
Tuesday’s
close: $26.60
-$40
-35
-30
-25
-20
-15
-10
-5
0
5
$10
4Q 4Q1Q 3Q2Q 3Q 4Q
2005 2006 2007
1Q 2Q
$722 million
-$38.7
billion
Sources: GM; Standard & Poor’s Compustat data
Associated Press
-$98.7 billion
$56.1
$48.9
$38.5
$38.7
$23.5
$21.2
$16.1
$16.2
GM record loss
General Motors posted a record
loss of $38.7 billion for 2007 —
the fourth largest annual loss in
U.S. history.
❚ GM ANNUAL NET INCOME
-$40
In billion
-20
-30
-10
0
$10
2000 2007
-$98.7 billion
$56.1
$47.8
$38.5
$38.7
$23.5
$21.2
$21.2
$17.5
$16.2
-$98.7 billion
$56.1
$48.9
$38.5
$38.7
$23.5
$21.2
$16.1
$16.2
-$98.7 billion
$56.1
$47.8
$38.5
$38.7
$23.5
$21.2
$21.2
$17.5
$16.2
-$98.7 billion
$56.1
$48.9
$38.5
$38.7
$23.5
$21.2
$16.1
$16.2
❚ TOP ANNUAL LOSSES
$98.7 billion
$56.1
$47.8
$38.5
$38.7
$23.5
$21.2
$21.2
$17.5
$16.2
Time Warner
MCI
JDS Uniphase
General Motors
General Motors
Time Warner Entertainment
UAL
CBS
Lucent Technologies
Qwest Communications
2002
2002
2007
2002
2004
1992
2000
2001
2001
2005
QUESTION: Who is eligible
for General Motors Corp.’s
buyout and retirement of-
fers?
ANSWER: Every one of GM’s
74,000 UAW-represented
employees. Some are buyouts
to just walk away with a
check, others are retirement
incentives that offer a payout
on the way to a pension and
other benefits.
Payouts can be in lump
sums or in more tax-friendly
ways, such as an annuity or a
rollover into a retirement
account.
Q: Is this just like the offers
at Ford Motor Co.?
A: Not exactly. Ford offers
some education packages that
GM doesn’t offer. Also, the
incentive for retirement-eligi-
ble workers is about 10% less
than Ford is paying.
Q: Why would it be less?
A: About two-thirds of GM
employees are or will be eligi-
ble to retire during the term of
this contract, while a much
smaller fraction of workers at
Ford or Chrysler would al-
ready be close to retirement.
Q: How many workers does
GM want to leave?
A: The automaker isn’t saying.
Economist Sean McAlinden
said last month that GM aims
to trim its workforce by less
than 6,000 — but that isn’t a
limit, by any means.
Any others who leave could
be replaced by up to 20,000
new UAW members, who do
non-assembly work for half
the pay and a fraction of the
benefits of current workers. If
GM could hire even more than
that, it might have to bump
some of them up to assembly
jobs at full wages — but still
with lower benefits.
Q: How much would that
save GM?
A: If it could hire 29,000 new
employees by 2011, the auto-
maker could save as much as
$1,382 per vehicle, McAlinden
estimates, which could put GM
on equal footing with Toyota
Motor Corp.’s oldest U.S.
plants.
GM buyout offers could
usher in cheaper workersFREE PRESS STAFF
QUESTION: Did General Mo-
tors really lose $38 billion?
Where did it go?
ANSWER: It fell off the balance
sheet.
If you looked at the balance
sheet under noncurrent assets,
you would see a line for deferred
incometaxes—suchastaxcred-
its built up from old losses. When
itnolongerlookedlikeGMwould
have a chance to take those cred-
its — by making money in the
United States — it had to quit
listingthemonthebalancesheet.
Q: It seems insane that a com-
pany valued at $27 per share
can lose $68 per share. How
can that be?
A: Amazing as it is, it illustrates
how accounting documents past
performance, while financial
markets evaluate future earn-
ings prospects.
Go back to the balance sheet
and look at the penultimate line.
It should be total shareholders’
equity, but on GM’s it is the total
shareholders’ deficit — and that
number grew from $5.6 billion to
more than $37 billion.
So the total value of GM stock
— at just $15 billion — is far high-
er than its book value.
Q: This sounds bad. Does it
mean that GM’s turnaround
has failed?
A: No, it means there is still a lot
to do. GM has good factories, an
improving lineup and global
growthonitsside.Butchallenges
remain in North America, at
least until 2010, when retiree
health care savings from the new
UAW contract really kick in, and
GM hopes to launch the Chevro-
let Volt and other phenomenally
fuel-efficient vehicles.
Answers lie in the balance sheetFREE PRESS STAFF
Biggest auto losses
GM’s 2007 net loss was the
worst year ever for an automak-
er. Here’s how it stacks up with
other bad years in the industry:
$38.7 billion ..................GM, 2007
$23.5 billion ..................GM, 1992
$12.6 billion.................Ford, 2006
$10.4 billion ..................GM, 2005
$7.4 billion...................Ford, 1992
$5.45 billion.................Ford, 2001
$4.45 billion ..................GM, 1991
Source: Free Press research
PAUL SANCYA/Associated Press
After reporting a record loss Tuesday, General Motors got back to cost-
cutting, offering a new round of buyouts.
F11A_13_0D_X#black#broad#single