I've been pretty tough on poor old GM (NYSE:GM), so I'm not going to dwell on its recent slump. After all, there's not much it can do to stave off competition from Honda (NYSE:HMC) and Toyota (NYSE:TM), which can manufacture popular vehicles in a cost-effective way. Nor will I dwell on GM's pension and health-care benefit troubles, which are shared by Ford (NYSE:F) and many other aging American manufacturers. To some degree, they're the inevitable result of past accounting conventions that let the companies pile on benefits that were -- for a time -- not reflected in earnings.
Earnings? Now that rings a bell. GM announced last night that it had to revise its already mega-huge 2005 loss. Instead of the $8.6 billion previously reported, the real deal will be a loss of $10.6 billion. That works out to a mammoth 87% of GM's market cap as of the moment I type this.
What's the big difference? First off, there's an increase in previously announced restructuring charges, from $1.3 billion to $1.7 billion. Next, GM expects its "contingent exposure" to Delphi's bankruptcy to cost $3.6 billion, not the $2.3 billion originally forecast. Finally, the reported goodwill impairment at GMAC of $439 million won't be coming back as previously thought. Wave bye-bye to that "noncash."
That noncash -- is that even a word? -- gets us to the real lesson here. I've said it before, and I'll say it again: Earnings are an opinion, so unless you're getting cash earnings from your company -- earnings you can see on the cash flow statement -- you're spending money on who-knows-what. A quick check of GM's cash flow statements over the past decade is pretty grim. I can count on one hand -- well, one finger; actually, no fingers -- the number of years the firm has been free cash-flow positive.
That doesn't mean there's no way to make money on GM stock. It just means that you'll have a devil of a time measuring what the company is actually worth, not to mention waiting for the market to match or fall below that price. Fools, there are more reliable ways to make money.
Seth Jayson thinks GM must be worth something, but he doesn't care to speculate on how much. At the time of publication, he had positions in no firm mentioned here. View his stock holdings and Fool profile here. Fool rules are here.
