Posted on 07/24/2014 8:17:25 AM PDT by jazusamo
General Motors reported earnings today for the 2nd quarter of 2014. The early prognosis is not good with share price falling after the report. While it is difficult for the Mom and Pop investor to sort through GM's myriad of one-time charges, special items and various smoke and mirrors, there are some key take-aways that give a glimpse of GM's financial health. Primarily, debt continues to grow at the company, now exceeding $40 billion while earnings are propped up by special items.
Analyzing the levels of cash compared to debt at GM is probably the easiest way to get to the truth behind the many numbers thrown about in the earnings report. In just the past three months at GM, short and long term debt has grown from a hefty $37.8 billion to an even heftier $40 billion. This key fact gives a contrarian view to what the media and GM always seem to focus on, GMs supposedly huge cash horde.
GM's cash and marketable security levels are just fine. They rose over the past three months from $28.1 billion to $29.8 billion. Doing the simple math, however, shows that the picture is not as rosy as first appears. Cash and marketable securities up $1.7 billion in three months while short and long term debt rose $2.2 billion.
New GM is increasingly looking like Old GM with high debt levels and a reliance on smoke and mirrors to fool investors into believing all is great in GM World. Two of the primary drivers to improve the perception of GM's earnings were a tax benefit and charges for recalls. Ironically, GM benefits from what most corporations are criticized for; they are not paying their fair share of taxes!
In fact, GM's earnings statement shows that, not only does GM not have tax expenses; they have a tax benefit of $340 million. Adjusted earnings numbers were also bolstered by backing out another charge for the many recalls that seem to come on a daily basis. GM took a $1.2 billion charge relating to the recalls. The important fact to note is that GM has yet to incur most of the expenses that they claim are affecting this past quarter's earnings! As bad as things currently look, they will get worse for GM when the costs of the recalls actually have to be paid, particularly if they exceed what I believe are low estimates of the true costs.
There are a couple of other ways to get past the shady accounting methods of GM to get a picture of how healthy the company really is. One is to look at operating income at GM's automotive group for the 2nd quarter, which was negative according to the income statement. The company shows a loss of $735 million before the fluff is thrown in.
Another way to look at how well (or not) GM is doing is to look at market share for vehicle sales. Year over year global market share fell from 11.6% to 11.3%. North America market share fell from 17.3% to 17.2%. GM also has to continue to spend on incentives to drive sales with incentives running at 1.1 times the industry average.
GM continues to benefit by having a perception of financial health that comes from a media (which coincidentally receives huge ad revenue from GM) that seems to treat the company with kid gloves. Financial analysts seem to give the company favorable treatment, as well. The rising debt picture, loss of market share and diminishing earnings at GM give evidence that the company is not doing as well as those in power would have us believe. The reliance on shady accounting and a manipulated public perception of the company will not stop the downward trend at the company if GM does not focus on the simple key to success in the auto industry; build better cars that consumers want at the best value.
GM's balance sheet is increasingly looking eerily similar to Old GM's. At debt levels of over $40 billion, it may start to become more difficult for GM to raise money through further debt offerings. Ratings agency will have to start considering downgrading GM's credit ratings. The proverbial straw that would break the back of GM would be an economic downturn for the auto industry. Just think, if GM can not capitalize on the hottest auto market in years, what will happen to them in a downturn? The obvious answer seems to be that they will have the same destiny as Old GM, which ends with a return trip to bankruptcy court.
Mark Modica is an NLPC Associate Fellow.
General Motors
General Motors NYSE: GM - Jul 24 11:16 AM ET 35.94 -1.47 -(3.93%)
https://www.google.com/webhp?sourceid=chrome-instant&rlz=1C1FLDB_enUS545US564&ion=1&espv=2&ie=UTF-8#q=gm%20stock%20price
Wow.
Even though GM is one of the biggest companies in the world, $40 billion of debt is still a staggering amount to deal with.
Obama likes to say Bin Laden is dead and Detroit is alive. Is GM on the road to good financial health as claimed??? It seems doubtful based on this news. And did our “investment” in GM through Obama’s efforts pay off for taxpayers, or for GM???
One exception is state run liquor stores. Pennsylvania actually makes money on that. So do people with the limited number of liquor licenses. Reselling is a great business if you are well connected.
If your not? Well, so what? How many politicians have you bought lately?
Gimmedat Motors doesn’t have to turn a profit. They have the taxpayer to bail them out.
Did anyone expect anything different when Obama gave the company to the unions?
What person decides its a good idea to loan Government Motors money?
Are they daft?
If they go belly up again they just may have to go the above board and legal bankruptcy route, the UAW will be screaming.
GM is coming out with a new model. They have named it the “Recall”.
“GM announced another recall today.”
I have heard a lot of former GM drivers saying they won’t buy an Obama Motors car any more.
GM is a success story compared to his foreign policy.
Pray America wakes up
GM only exists to pay pensions and medical care for the UAW who then use a ton of the dues to fund more Commie fun and games. It is not a business anymore, it is a conduit to funnel money to the Commies. Anyone who invests in GM is a moron.
Dint Obie and Co. brag about how “GM was alive” thanks to them?
If you are 40 billion in debt, it is time to turn the lights out.
There is NO WAY Obama will allow them to declare bankruptcy. Not during his administration. GM knows they have the US taxpayers’ pocketbook and will make no effort to clean up their act while Obama is the semi-retired president. They should have gone the way of Packard, Nash, and Studebaker.
Another wonderful success story for mac daddy.
I’m so glad us taxpayers bailed out the union’s pension (VEBA) just in time for Gov Motors to slip back into Ch.11
They’re going to want another bailout
You wrote the magic word...https://www.youtube.com/watch?v=YEEy615Jzg4
Look at the rest of Detroit in bankruptcy, bondholders (the ones owed money) are the ones getting whacked along with taxpayers in the “Grand Bargain” they came up with.
Which is a reason I oppose subsidies and bailouts, it breeds that attitude.
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