The latest quarter has brought another SUV-sized loss for General Motors (NYSE: GM ) . Today, the company announced a preliminary fourth-quarter loss of $1.2 billion, or $2.09 per share, net of special charges. Even the most pessimistic of the 17 analysts who follow the company expected a loss no greater than $1.66 a share. The jumbo-sized miss almost certainly triggered the 6.8% drop in GM's share price in early trading.
Listening to the company's conference call is an exercise in disappointment. GM can talk all it wants about cost control, finding a creditworthy partner for GMAC, and the cost of the Delphi (OTC BB: DPHIQ.PK) reorganization, which could cost anything from the $3.6 billion already spent this quarter to as much as $12 billion. It all sounds hollow when you consider the $1.1 billion GM paid last year in dividends (before last quarter's results).
When asked for a target for 2006 capital expenditures, the company simply replied that they were "not going down." That's a flippant description for an expense that tipped the scales at $8 billion in 2005. Worse, it calls into question just how well-defined GM's 2006 plan really is.
There are rays of hope for 2006. For one thing, available liquidity stands at roughly $20 billion. Contrary to popular opinion, the pension fund also appears to be in decent shape, given currently available cash, the funded status of the pension plan (per 2004's annual filing), and the company's actuarial assumptions. Furthermore, management does not expect to pay any contributions through the end of the decade.
Near-term financial obligations are modest, with only $1.5 billion in debt maturing through 2007. Maybe this near-term financial flexibility, in conjunction with obvious room for improvement, explains why Tracinda's Kirk Kerkorian has taken a 9.9% stake in GM.
A reduction of $4 billion in structural costs and $1 billion in material costs should help GM's 2006 results. But the year ahead will truly hinge on consumers' response to the 2007-model sports utility vehicles debuting this quarter. Redesigned with better fuel economy, these higher-margin products could have a significant profit impact on GM's troubled North American operations.
So how will 2006 fare? Earnings estimates from analysts range from a loss of $2.24 to a profit of $2.87 a share. In fact, 2006 could produce another whopping loss based solely on the settlement of Delphi's bankruptcy.
GM and Ford (NYSE: F ) have well-documented troubles. Of the Big Three, only DaimlerChrysler (NYSE: DCX ) is respectably profitable, but its 1.9% trailing operating margins fall well behind the 8.3% and 7% margins at Toyota (NYSE: TM ) and Honda (NYSE: HMC ) , respectively.
GM is a supersized speculation. Kerkorian may prove an activist shareholder, and the cost-cutting in 2006 should help operations substantially. But GM still faces formidable competition that lacks difficulties like a poor credit rating, an unearned dividend, and an inability to lucidly articulate capital expenditures and other major expenses. As far as investments go, GM may be unsafe at any speed.
For further Foolishness, see GM's latest quarter by the numbers.