[ad#post_ad]On Wednesday GM released its ‘fresh start’/GAAP compliant results, and while this report is of interest for many people anxious to find out just how ‘new’ GM is doing, the results have been prepared by GM with a much different intention from releases in the past.
The very first line of the chart set accompanying the results from GM said it all, “Building the Foundation to Go Public”…at least it used it. Shortly after GM put out the press chart, the most important statement in the whole release disappeared, now there is just a empty space with no indication of what you are about to read.
That statement really got to the heart of the matter. The report itself was not intended to wow anyone, nor is it intended to convince anyone the company is A-OK right now, it is not prepared with a focus on the ‘spin’…this report is for taking out the trash.
GM has looked around for anything lying around the Ren Center that could be bad for the bottom line in upcoming quarters, or that could appear as a negative in the future, and they have put it in here. ‘One time’ items are running wild, and reasonable assumptions abound, a good clean report all around. Unsurprisingly, it ends up to the tune of a 4.3 billion dollar loss.
GM CFO, Charles Liddell characterizes GM’s progress as follows: “As the results for 2009 show there is still significant work to be done. However, I continue to believe we have a chance of achieving profitability in 2010.”
While GM is still talking up the finer points of its business in this report, that is not at all what this report is intending to represent. GM is cleaning house. They are setting up the pins to be knocked down. This report is the target for the next quarters to destroy.
The only real information to be gleaned from this report is the cash. (It is always about the cash) How much do they have, and is it going up or down. Well, it is still going down (1.9B used in Q4) and they have about 23 billion of it left (non-restricted). Which would be more than adequate going forward, except for the black hole that is Opel, and the fact the pension fund is still under funded by 27 billion…and of that the GAO (Government Accountability Office) just recently concluded that GM will have to add 12.4 billion to by 2014.
But nevermind all that, the days of ‘real’ trouble are still years in the future, thanks to the 50+ billion the government provided GM out of C11, which was clearly calculated to at least see them through the next election cycle. Right now GM has two goals in mind while releasing this financial update, and neither of them is profitability or the current cash flow chart, and those two goals are both only three letters long: IPO and DoE.
The general consensus (and the rumblings from GM itself) indicate that a IPO is coming later this summer, and to make it successful GM needs to cultivate a atmosphere of optimism and hope for the future. The best way to do that is by first selling cars, lots of cars; and secondly by having a a really great, breakout quarter to really get the ball rolling to go along with those sales.
Enter the master of managing expectations and beating expectations by a penny, former Microsoft CFO, Charles Liddell. He was born for handling a job like this. If turning a profit in the upcoming quarters was considered a miracle, GM is halfway to sainthood already…it is in the bag.
Short term success/acceptance of a IPO very many times is based on sentiment at the time, which can be brought out by just plain old good self promotion. Looking past the initial buzz, and at the actual viability of the company, it doesn’t look so good. GM has to make a profit of at least $5.9b in 2013, and $6.4b in 2014 to just meet commitments on their pension funds. /how likely is that?
For GM’s part, they themselves have said they need to maintain their piece (market share) of a auto industry that sells north of 10.5-11 million just to break-even. And while the SAAR has shown signs of life of late, GM reported US market share down to 19.6% from 22.1% and globally at 11.6%, down from 12.4%. To that end, GM has voluntarily reinstated over 660 dealers that only months ago were deemed unprofitable, and a necessary elimination under the turnaround plan, as a last resort to ‘goose’ sales in the short term ahead of the IPO. /very old GM
More specifically, the letters ATVML, which stand for Advanced Technology Vehicle Manufacturing Loan program. This road has been a long and winding one. Even before GM went bankrupt they were looking to the DoE to start the process, but there was a viability clause in the program that says they have to have a reasonable chance to be in existence for the term of the loan. Wisely the DoE decided to not light that money on fire, keeping it to themselves and telling GM to come back later.
After GM’s bankruptcy they did indeed go back to the DoE, and figured while they were there why not request a additional 2.6 billion dollars on top (GM submitted the plan to develop the Volt and two other spin-offs based on the Voltec platform), bringing the total request to well over 10 billion. At the time it was thought that a clean and rinsed GM, flush with taxpayer’s money would get at least a piece of this money without much effort. Turns out…not so much
While the DoE was busy handing out cheques to Ford (they asked for 11 billion, and got 5.9) and Nissan (received 1.6 billion, only took 1.4B), GM was slow-rolled again. No GAAP reporting, no cash. It is thought today’s milestone is one of the last hoops to jump through to gain access to this resource.
It is ironic that while the program is intended to “support the development of advanced technology vehicles and associated components in the United States,” Walter Borst (GM’s Treasurer) told a congressional oversight committee this past July that, “securing those funds are a component of GM’s shorter-term liquidity assumptions.” and indicated these funds are a source of liquidity that GM is factoring into its plans in order to meet its capital requirements in the future. /hrm
A big part of any Department of Energy money coming GM’s way will be because of the plan submitted to the DoE based on the Volt’s high visibility, and its ability to compete in the US market. Therefore, given the recent pressure of Nissan pricing the Leaf at $32,780, and Mitsubishi’s announcement last week that not only will they sell the i-MiEV in the US in 2011, but that they are “targeting sub-$30,000 for the U.S.” (pre-rebate). Look for GM to back away from talking up a $40,000 price tag, or the fact they will be losing money at that price. (Bob Lutz certainly won’t be commenting about it on Letterman again).
So our Volt is not only the focus of getting vital DoE money, but it is going to be the poster child of GM’s upcoming IPO. Volt pricing is no longer about supply and demand, or what the public will pay…or even if GM can make money on it or not. For better of worse, the Volt is all about image now, it will be the face of ‘new’ GM, and it has to be perceived as a competitive, if not dominant player going forward, regardless of actual P&L. It is the ‘sizzle’ of new GM, and the sizzle is what will sell the IPO…not the steak.
GM doesn’t want to sell high volumes of a car at a loss, and they don’t want multi-year back order lists. I’d look for a Volt MSRP around $35,000, with less talk about the Volt being unprofitable and more talk of unexpected cost savings. $35,000 would be a competitive price, but would not likely generate huge backlogs, giving GM time to slow roll as Nissan burns through their allotment of $7,500 rebates and battery prices come inline with the asking price.
This entry was posted on Saturday, April 10th, 2010 at 7:55 am and is filed under Financial. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.