Finally, some good news from GM (NYSE:GM). At least it seems like good news to Mr. Market, who looked at GM's earnings release Thursday, dutifully nodded with the well-spun bullet points at the top, and applauded with vigor. The emperor's loyal subjects sent the stock up about 10%. But I feel a lot like that kid who went to the king's parade and could see nothing but a feeble old geezer in a wrinkly birthday suit. No matter how much I rub my eyes, I can't get this thing to look good.
First of all, the earnings number -- well, it's a loss, really -- is a lot like GM's car lineup. There are too many versions, and most of them are ugly. You get the preliminary (maybe GAAP -- generally accepted accounting principles) loss of $0.57 per share. That one includes all the extra items, though one of those items -- the $681 million health-care settlement -- is up for grabs as far as the official accounting treatment, which is why the numbers here are to be viewed as placeholders until GM gets a call from the refs at the Securities and Exchange Commission.
If you don't like the negative four bits, you can use the "excluding special items but including the health care settlement" figure of -$0.94 per share. Or, heck, why not try the "excluding all the yucky stuff but including the good stuff" number of a $0.26 per-share profit, as CNNMoney did?
Why not? Well, because that would be a bit silly.
Make no mistake -- some of the "better" GM performance for the quarter came from thinner losses or even profits from automotive operations. But let's get real. The "three out of four" geographic sectors reporting "adjusted" earnings put up a profit that was a paltry one-fourth the size of the North American unit's loss.
And keep in mind that some of the rest of the "better" performance comes from nifty accounting. For instance, GMAC did 4.5% more revenues this quarter than in the year-ago period, yet the provision for financing and insurance losses dropped. That juiced the bottom-line results there by $186 million pre-tax, which may be appropriate, but it sure doesn't represent what I'd call "high-quality" earnings. And lest you think that number is peanuts, remember the reported net loss for all of GM this quarter was $323 million.
Also keep in mind that the reduced provision for losses at GMAC came at the same time that the automotive financing statements show an increase in charge-offs and delinquent contracts. The last two data points -- along with the 20% jump in interest expense -- make me wonder whether the recent sale of a 51% stake in GMAC is not, as I have thought, a case of burning the furniture to heat the house. Given the trends, maybe it's more like throwing out a smoldering settee before it sets the rest of the place ablaze.
The bottom line with GM is that it is a very tough nut for an individual investor to crack. There are a zillion moving parts, and if those Delphi workers get pushed over the edge, watch out. While the likes of Toyota (NYSE:TM), Honda (NYSE:HMC), and DaimlerChrysler (NYSE:DCX) continue to gobble market share, and Ford (NYSE:F) takes its own bitter medicine to try to save itself, GM remains the riskiest play in the pile. And if you think the recent concessions have finally gotten GM out of the woods, I refer you to an ominous passage from the description of the health settlement:
"As part of the agreement, GM will make contributions to a new independent Defined Contribution Voluntary Employees' Beneficiary Association (DC VEBA) of $1 billion in each of 2006, 2007, and 2011. GM will also make supplemental contributions to the DC VEBA related to events like profit-sharing payments and increases in the value of GM stock." (The emphasis is mine.)
What, exactly, are GM shareholders on the hook for here? How much of their future returns have been promised to labor? And doesn't this shove-it-all-into-the-future arrangement sound a little bit too much like the stuff that got GM into so much trouble in the first place?
Seth Jayson hears GM's got some decent cars out there. He wishes he could say the same about the stock. At the time of publication, he had no positions in any company mentioned. View his stock holdings and Fool profile here. Fool rules are here.
