DETROIT - How bad is General Motors' $38.7-billion loss (the biggest ever for any automaker)? Or its $23-million loss? And what's the difference? At Motor Trend, we've been hedging our considerable praise for GM's renaissance (it has won Car of the Year, Chairman and CEO Rick Wagoner is #1 on our Power List) with the mantra, "but it's not out of the woods, yet."
That much seems true from its 2007 results. The $38.7-billion figure includes that "special item" from the third quarter when GM had to give up tax credits it would have received had profits been better. You don't pay income taxes on negative profit, so those lost tax credits kind of doubles the bad news. It's not cash that comes out of GM profit, though. So $23 million is what GM actually lost in '07, once you subtract that special charge.
Comprising that $23 million net loss, GM made a little money in Europe, Latin America and Asia-Pacific, but lost $1.5-billion in North America. Its biggest areas for growth are China, of course, and Russia, where GM sales grew by 40 percent last year. (I've always maintained that the Soviet Union began to fall apart way back in 1972 when President Nixon during a visit gave Leonid Brezhnev (a car nut) a new Cadillac Eldorado. I'd bet today's Russians remember that Caddy the same way the Chinese remember the Buicks of Sun Yat-sen and Zhou Enlai.)
None of this is enough to keep all of GM's 74,000 United Auto Workers in their jobs. GM is offering buyouts: full pension early for some, which GM says it can fund with a pension fund surplus. Those with less experience are offered buyouts with GM cash, all of which would allow GM to hire replacements at a lower hourly rate, per the contract the automaker signed with the union last fall. Chief Financial Officer Fritz Henderson expects GM will know the number of employees who will accept the buyout by July.
That's the same time GM expects the North American auto market to start turning upward. Both GM and Ford predict a slow first half of the year and a healthier second half. I hope they're right, but if we're just at the beginning of a recession, a disappointing second half would put a serious crimp in turnaround efforts at GM, Ford and Chrysler.
Ford's turnaround plan calls for a return to profitability by the end of 2009. GM has stated no goal; its $23-million net loss could be a few car lines away from profitability. It has successfully pulled away from the daily rental business, and Henderson says the company is pretty encouraged that it was the only automaker to sell more cars in the U.S. in January, versus January 2007.
For GM, 2010 and '11 could be pivotal. Coincidentally, that's about the same time it plans to introduce its costly Chevrolet Volt plug-in hybrid. In '10/'1l, Henderson says, GM will realize the full value of its '07 UAW contract, expected to be $4-billion to $5-billion in savings. It will realize a $500-million savings related to its work on helping parts supplier Delphi. GM also expects higher prices (and thus profits) for stronger brands, material cost reductions, further growth in emerging markets, better GMAC performance (it's 49-percent owner). And if the U.S. market returns to its trend of higher per-year car sales, that's worth another $1-billion to $1.5-billion.
Possible downsides are an industry mix shift (especially if GM goes overboard, like Ford, for crossovers), cost of regulations and stiffer competition.
If GM finds itself on the upside of all that, it could easily make $5- to $7-billion in '10 or '11. So the answer to the big question is this: it will take at least two years before we can figure out how real GM's renaissance is.