In a not-so-stunning turn of events, the General's claiming a real, live heavens-to-betsy profit in the third quarter of 2006. Yes, it's an adjusted net income — but hey, it's a start. The big n' bad and rock n' rollin' son of Detroit showed a net loss of $115 million, or $0.20 per share — but showed an adjusted net income of $529 million, or $0.93 per share diluted. These numbers came after a record third-quarter revenue of $48.8 billion. This is much better than that whole $1.7 billion loss ($2.94 per share) for the quarter a year-ago. In some of the specifics, GM NorAm only took an adjusted loss of $367 million this quarter — much better than the $1.67 million shellacking they took last year at this time. Of course, they also have less employees now, so there's that. GM Europe took a tiny hit — a net loss of $16 million, but the big money grip for the RenCen based automaker is GM Asia Pacific — posting adjusted net earnings of $83 million for quarter number 3. The rest of the world took in a very decent $184 million — $153 million more than last year. A number the General's pegging on increasing volume from some of the automaker's new hotness they're shipping out in Brazil, South Africa, Colombia and the Middle East. We'll be expecting Rick Wagoner to be on the air in a bit crowing about all of this, so stay tuned for more coverage. In the meantime, full release after the jump.
GM Reports Preliminary Third-Quarter Financial Results
* Reported net loss of $115 million, or $0.20 per share
* Adjusted net income of $529 million, or $0.93 per share diluted
* Record third-quarter revenue of $48.8 billion
* Upper end of estimated Delphi exposure reduced by $4.5 billion
DETROIT - General Motors Corp. (NYSE: GM) today reported significantly improved preliminary financial results for the third quarter of 2006. The company posted a profit on an adjusted basis, excluding special items, and generated its third consecutive quarter of record revenue.
GM reported a net loss of $115 million, or $0.20 per share, for the third quarter of 2006, compared with a loss of $1.7 billion, or $2.94 per share, for the year-ago quarter. The net loss for this year's third quarter included $644 million, or $1.13 per share, in charges for special items, including goodwill impairment at GMAC and an increase to the charge associated with Delphi's reorganization.
GM reported 2006 third-quarter adjusted net income, excluding special items, of $529 million, or $0.93 per share diluted, on revenue of $48.8 billion. These results represent a $1.6 billion improvement from the year-ago loss of $1.1 billion. GM's global automotive operations almost fully accounted for the improvement, while lower GMAC results were more than offset by benefits associated with certain tax matters.
As a result of progress in ongoing discussions regarding the bankruptcy filing by Delphi Corp. and updated estimates related to certain benefit guarantees, GM has significantly narrowed the range of its estimated potential exposure related to this filing. The new range is between $6.0 and $7.5 billion pre-tax, as compared to a previously disclosed range of $5.5 to $12 billion. GM believes the more likely amount of the liability is at the lower end of this new range. Reflecting these updated estimates, GM has also increased the reserve for its contingent liability for Delphi by $500 million in the third quarter, bringing the total charges taken to date to $6 billion pre-tax. In addition to these charges, the final agreement with Delphi may result in GM agreeing to reimburse Delphi for certain labor expenses to be incurred upon and after Delphi 's emergence from bankruptcy. The initial payment in 2007 is not expected to exceed approximately $400 million pre-tax, and the ongoing expenses would be of limited duration and estimated to average less than $100 million pre-tax annually. GM expects these payments to be far exceeded by anticipated reductions in Delphi material cost premiums.
"Our third quarter results again reflect significant progress in our fast-paced initiatives to turn around our business and create a company that is leaner, faster and positioned for long-term sustainable growth," said Chairman and Chief Executive Officer Rick Wagoner. "Our turnaround efforts in North America and Europe are well underway, and having a large impact on the bottom line, as evidenced by the $1.6 billion improvement for the quarter. This improvement in North America and Europe, combined with the strong sales growth and earnings performance we see in Asia and Latin America, confirm that our plan is on track. We have more work to do, and we remain focused on continuing progress in the quarters to come.
"In addition to the automotive turnaround, our near-term priorities include the successful resolution of the Delphi negotiations and closing the GMAC transaction," said Wagoner. "While a number of important issues still remain to be resolved, we are encouraged by the progress we have made on Delphi, and remain optimistic that we can achieve a consensual agreement. Regarding GMAC, we have completed several key milestones in the process and continue to work toward a fourth-quarter close."
GM Automotive Operations
Net income from global automotive operations improved by $1.5 billion year-over-year, posting a loss of $116 million on an adjusted basis, excluding special items (reported net loss of $62 million). This improvement is due primarily to significant improvement in North America, along with continued strong performance in other regions.
GM's global market share in the third quarter was 13.9 percent, up slightly from the second quarter market share of 13.7 percent, but down from 14.4 percent in the third quarter of 2005. The change in market share is largely attributable to the company's strategy of reducing sales of low-margin daily rental vehicles in North America and Europe. GM share in the U.S., however, set a stronger pace in the third quarter at 25.1 percent, its highest quarterly result in 2006.
GM North America posted an adjusted net loss of $367 million in the third quarter of 2006 (reported net loss of $374 million), a $1.3 billion improvement year-over-year, despite a decrease in production of 96,000 units. This significant progress largely reflects improvements in structural costs, as the company executes the pension, health care and manufacturing cost reduction initiatives related to its North American turnaround plan. The structural cost reductions, which are on track to total $6 billion in 2006, far offset the impact of the lower production for the quarter.
"There continues to be excellent progress in North America, with over $3.4 billion of net income improvement in the first nine months of the year. We are encouraged by the results, but we recognize that there is still more work to be done," Wagoner said. "We are on track to meet the structural cost reduction target of $9 billion on an average annual running rate basis by the end of 2006. Just as important, our aggressive new product launch program, a result of our increased capital spending, continues this fall with the introduction of our all-new Chevrolet Silverado and GMC Sierra pickups and the Saturn Outlook and GMC Acadia crossovers."
GM Europe posted an adjusted net loss for the quarter of $16 million (reported net loss of $103 million) reflecting an improvement of $105 million from the prior year's loss of $121 million. The results reflect continued execution of the GME restructuring plan, emphasizing both structural cost reductions and improved quality of sales.
"Our turnaround in Europe is in full gear. The region continues to make strides in cost reduction, augmented by pricing improvements arising from a focused sales and marketing strategy including lower rental fleet volume," Wagoner said. "We are seeing strong results from our Chevrolet brand, which posted record sales in Europe for the quarter. And, the newly launched Opel/Vauxhall Corsa is on track to exceed its 2006 objectives, with approximately 130,000 orders already placed in Europe."
GM Asia Pacific posted adjusted net earnings of $83 million for the third quarter (reported net earnings of $231 million), down from last year's earnings of $188 million. The difference primarily reflects the loss of income from Suzuki following the reduction in GM's equity interest in Suzuki and costs associated with launching the important all-new Holden Commodore and Statesman models in Australia. Strong sales performance in the region continued as market share increased to 6.2 percent from 5.9 percent, driven primarily by growth in Korea and China. GM products continue to gain strong acceptance in the fast-growing China market, with record third quarter sales of 192,000 units, up 17 percent over the same period last year. GM's global sales of GM Daewoo products exceeded 276,000 units in the third quarter, up 21 percent over third quarter 2005.
GM Latin America, Africa and Middle East posted strong adjusted and reported net earnings of $184 million for the third quarter, which reflects an improvement of $153 million from the year-ago period. The results primarily reflect an increase in volume generated by new product launches throughout the region. Market share in the region increased to 17.3 percent from 16.7 percent in the year-ago period as a result of strong sales in Brazil, South Africa, Colombia and the Middle East.
"Our Latin America, Africa and Middle East region posted their best quarterly financial results in nine years," said Wagoner. "We are seeing strong performance and growth in virtually every market in the region - - a great example of leveraging our global product portfolio in key growth markets."
GMAC Financial Services earned adjusted net income of $346 million in the third quarter of 2006, as compared to record net income in the year-ago period of $654 million. GMAC's reported net loss for the quarter totaled $349 million, which included non-cash goodwill impairment charges of $695 million after-tax related to GMAC's Commercial Finance business.
GMAC's financing operations earned $136 million for the third quarter, as compared to $139 million earned in the year-ago period. These results include an expense of $135 million related to GMAC's successful third quarter offer to repurchase $1 billion worth of certain zero coupon bonds, which will result in improved earnings in future quarters. Auto Finance results otherwise benefited from an increase in net financing revenue as a result of strong retail financing penetration as well as lower provisions for credit losses.
ResCap's net income was $76 million in the third quarter of 2006, down from $282 million earned in the third quarter of 2005. The decrease in earnings was attributable to the challenging U.S. mortgage market which has negatively impacted margins and credit performance despite year-over-year increases in production. Mortgage originations totaled $51.5 billion for the quarter, representing a slight increase from $51.3 billion in the same period in the prior year.
GMAC's Insurance operations generated record quarterly net income of $191 million in the third quarter, up $102 million from earnings of $89 million in the year-ago period, primarily attributable to a combination of favorable loss performance and higher capital gains.
Excluding the goodwill impairment charge, GMAC's Other segment, which includes the Commercial Finance business unit and GMAC's equity investment of approximately 22 percent in Capmark Financial Group Inc. (Capmark), incurred an adjusted loss of $57 million (reported net loss of $752 million including the goodwill impairment charge), compared to $144 million earned in the same period last year. This decline results partially from GMAC's reduction in ownership interest of Capmark as a result of the first quarter sale. In addition, it includes the negative impact of higher credit provisions at Commercial Finance.
GMAC paid GM a $500 million dividend in the third quarter, resulting in 2006 year-to-date cash dividends of $1.9 billion.
GMAC continues to maintain adequate liquidity, while prudently reducing its excess levels of cash to more moderate levels with cash reserve balances at Sept. 30, 2006 of $14.1 billion, including $9.1 billion in cash and cash equivalents and $5.0 billion invested in marketable securities. This compares with cash balances of approximately $23 billion at June 30, 2006.
Cash and Liquidity
Cash, marketable securities, and readily-available assets of the Voluntary Employees' Beneficiary Association (VEBA) trust totaled $20.4 billion at Sept. 30, 2006, down from $22.9 billion on June 30, 2006, but up from $19.2 billion on Sept. 30, 2005. GM withdrew $2 billion from the VEBA trust in the third quarter to fund health care.
In this release and in related comments by General Motors' management, we will use words like "expect," "anticipate," "estimate," "forecast," "initiative," "objective," "plan," "goal," "project," "outlook," "priorities," "target," "intend," "evaluate," "pursue," "seek," "may," "would," "could," "should," "believe," "potential," "continue," "designed," or "impact" to identify forward-looking statements that represent our current judgments about possible future events. We believe these judgments are reasonable, but GM's actual results may differ materially due to a variety of important factors.
Among other items, such factors include: our ability to achieve reductions in costs as a result of the turnaround restructuring, health care cost reductions and accelerated attrition programs, to realize production efficiencies and to implement capital expenditures at levels and times planned by management; the pace of product introductions and market acceptance of our new products; changes in the competitive environment and the effect of competition in our markets, including on our pricing policies; our ability to maintain adequate liquidity and financing sources and an appropriate level of debt; restrictions on GMAC's and ResCap's ability to pay dividends and prepay subordinated debt obligations to us; the final results of investigations and inquiries by the SEC and other government agencies; changes in relations with unions and employees/retirees and the legal interpretations of the agreements with those unions with regard to employees/retirees; our ability to complete the timely sale of a 51-percent controlling interest in GMAC and the effect of that sale on the results of GM's and GMAC's operations and liquidity and their respective credit ratings; labor strikes or work stoppages at GM or its key suppliers such as Delphi Corporation or financial difficulties at those key suppliers; negotiations and bankruptcy court actions with respect to our relationship with Delphi, particularly GM's ability to obtain a consensual resolution of its issues with Delphi on acceptable terms; and potential increases in our product warranty costs and costs associated with product recalls or product liability.
Other factors are the effects of transactions or alliances entered into by one or more of our competitors; additional credit rating downgrades and their effects; costs and risks associated with litigation; new or amended laws, regulations, policies or other activities of governments, agencies and similar organizations; price increases or shortages of fuel; changes in economic conditions, commodity prices, currency exchange rates or political stability in the markets in which we operate; and other factors affecting financing and insurance operating segments' results of operations and financial condition such as credit ratings, adequate access to the market, changes in the residual value of off-lease vehicles, changes in U.S. government-sponsored mortgage programs or disruptions in the markets in which its mortgage subsidiaries operate, and changes in its contractual servicing rights.
In addition to these factors, a variety of other factors may materially affect GMAC's actual results, including: changes in the competitive environment and the effect of competition in GMAC's markets, including GMAC's pricing policies; GMAC's ability to maintain adequate financing sources and an appropriate level of debt; the profitability and financial condition of GM, including changes in production or sales of GM vehicles and risks based on GM's contingent benefit guarantees; changes in GMAC's accounting assumptions that may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; and the threat of natural calamities.
The most recent annual reports on Form 10-K and quarterly reports on Form 10-Q filed by GM and GMAC provide information about these factors, which may be revised or supplemented in future reports to the SEC on those forms or on Form 8-K. We caution investors not to place undue reliance on forward-looking statements, and do not undertake any obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other such factors that affect the subject of these statements, except where expressly required by law.