A Generally Massive Loss for GM

Pssst! Buddy! See that $0.08-per-share profit General Motors (NYSE: GM  ) reported, soundly whipping analyst forecasts of a $0.54 loss? Well, it's not real. The profit didn't come from selling cars, resulting instead from tax benefits that analysts didn't see coming.

The market turned tail when it realized that the report was not what it first thought. It wasn't a smoke-and-mirrors ploy, just not the big deal GM seemed to first suggest.

And it's not just that the earnings report was bad under the surface. The full-year loss was the worst General Motors has ever posted. Despite a money-saving labor agreement, building $9 billion in annual cost savings over the past two years, and managing to eke out 3,000 more car sales than Toyota Motors (NYSE: TM  ) for 2007, the company posted a massive full-year loss of $38.7 billion.

Sure, like the tax benefits that boosted profits for the quarter, those weren't all operating losses. The deficits were almost all related to a non-cash $38.3 billion charge in the third quarter, tied to the valuation allowance against deferred tax assets. Yet the picture painted clearly doesn't depict a healthy car company.

It may be time for GM to follow Chrysler's lead and opt for a smaller footprint. Standing conventional Detroit wisdom on its head, Chrysler now plans to profit from being a smaller company with just a few models, rather than a sprawling enterprise offering dozens of models like Toyota, Ford (NYSE: F  ) , and Honda (NYSE: HMC  ) . Even Ford realizes that it needs to concentrate on being a Ford manufacturer; it's now hoping to unload a number of its prestige brands.

GM's current turnaround plan makes Ford's "The Way Forward" plan look like a four-lane expressway, and GM's faltering sales are hurting others, including parts suppliers and tire makers. Goodyear (NYSE: GT  ) lost a title of its own to Bridgestone, partially because of the ailing domestic car market.

The fourth quarter showed just how vulnerable GM's position is in the key North American market. Worldwide sales actually rose 3% in 2007 to 9.4 million units, but U.S. sales were off more than 6% for the year.

A bigger headache for GM: becoming profitable again. Although the company has offered all 74,000 of its employees a buyout, consistent profitability still seems a long way off. Cost-cutting measures like the UAW agreement won't realize their full benefits until 2010 or 2011.

As it stands now, GM is up on blocks, and it won't be getting any traction for the foreseeable future.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 577818, ~/Articles/ArticleHandler.aspx, 10/28/2016 5:50:40 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,161.19 -8.49 -0.05%
S&P 500 2,126.41 -6.63 -0.31%
NASD 5,190.10 -25.87 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/28/2016 4:02 PM
GM $31.32 Down -0.01 -0.03%
General Motors CAPS Rating: ***
F $11.72 Down -0.02 -0.17%
Ford CAPS Rating: ****
GT $28.29 Down -2.69 -8.68%
Goodyear Tire and… CAPS Rating: ****
HMC $29.82 Down -0.13 -0.43%
Honda Motor CAPS Rating: ****
TM $114.81 Down -0.04 -0.03%
Toyota Motor CAPS Rating: ***