General Motors Posts Third-Ever Biggest Loss

05 August 2008

DETROIT: When General Motors sneezes, Motown catches cold. And GM's latest set of numbers will likely see America's automaking capital placing bulk orders for Kleenex following the firm's eye-watering Q2 loss of $15.5 billion (€9.96bn; £7.85bn).

The deficit – its third-ever largest – comes as GM (along with Ford and Chrysler) is downsizing its leasing programs which, as the Wall Street Journal observes,  have long been a sales linchpin. Now, because of declining car values, leasing has become a financial liability rather than a sales booster.

The latest numbers intensify the pressure on GM chairman/ceo Rick Wagoner to convince shareholders that he can steer the company back to profitability – a Sisyphean task given that the firm lost a cumulative $50bn between 2005-2007. Since when it has bled an additional $18bn.

GM's woes are for the most part triggered by underperformance in the US and Asia. In the former, revenue fell from $46.7bn to $38.16bn; while Asian operations lost $65 million due to higher costs for hedging against currency fluctuations.

"Strong" profits in Latin American, Africa and the Middle East provided a sliver lining as did a "modest" profit in Europe. But GM's auto operations worldwide lost $4bn during the period.

The company claims to have sufficient cash and liquid assets to last through 2009, but Calyon Securities analyst Mark Warnsman regards that as "not particularly reassuring".

He adds: "Clearly, GM will need to take concrete action within the next year or so to improve its balance sheet."

Data sourced from Wall Street Journal Online; additional content by WARC staff