General Motors announced losses (net of special items) of $3.4 billion for calendar year 2005 and $1.2 billion in the year’s final quarter, capping one of the worst years in the automaker’s history.
GMAC, General Motors’ financing arm, once again, showed strong results with a $2.8 billion profit for the year and $614 million in the fourth quarter. Both numbers were slightly below 2004’s $2.9 billion and $683 million, respectively. GM and GMAC each ended the year with $20 billion of cash, marketable securities and readily-available assets providing much needed liquidity as GM proceeds with its turnaround plan.
In a call with securities analysts, GM management indicated that it fully recognized the need to change the company’s direction and believes the turnaround plan unveiled earlier in January will be successful.
Breathing room
GM has only $1.5 billion in term debt coming due through 2007, giving it some breathing room through the plan’s initial implementation. Among other points: 2006 will see 30% of GM’s models replaced by updated versions. The company also plans to introduce a simpler pricing structure that is more in tune with what customers actually pay.
GMAC’s continued profitability partially resulted from lower bad debt expenses and improved used vehicle prices on terminated leases. GMAC has more investments coming due in the next few years than debt maturing. No timetable was given for a possible sale of GMAC, although General Motors indicated it has contingency plans should such a sale not take place.
While automobile financing generated $1 billion in profits for GMAC in 2005, results were lower than the prior year by $476 million. In contrast, GMAC’s mortgage business earned $1.35 billion, up from 2004’s $1.1 billion.
GMAC also has $50 billion of unutilized bank lines and financing capacity available in addition to its cash on hand, should such resources be needed.
In summary, GM has sustained large financial losses during the recently concluded 2005 calendar year. Management has significant liquidity to fund the initial stages of its turnaround plan and hopes 2006 will mark the beginning of a new era.
With the introduction of new products and an ambitious agenda of cost cutting, bondholders will be anxiously watching for progress in the coming months.
