GM's really bad news: Its revenue
DETROIT — A $15.5 billion loss is bad enough, but that may not even be
the worst news in General Motors' abysmal second-quarter earnings report.
Here's the really bad news: General Motors' North American quarterly
revenue totaled $19.8 billion, down nearly $10 billion compared with the
same period a year earlier.
Revenue is a strong indicator of an automaker's health because it does
not contain any one-time items, says Dave Cole, chairman of the Center
for Automotive Research in Ann Arbor, Mich.
GM second-quarter results showed sharp declines in North American and
Q2 2008 Q2 2007
N. American revenue $19.82 billion $29.66 billion
Revenue $38.15 billion $46.67 billion
Adjusted net income - $6.34 billion $1.30 billion
Reported net income - $15.47 billion $784 million
'In a battle for their life'
"Revenue is a measure of the business going forward," Cole says.
"They're in a battle for their life."
GM attributes about $1.8 billion of its revenue downturn to production
lost during the strike at American Axle & Manufacturing Holdings Inc.
And the slow economy also took a toll. But disappearing sales of
high-profit trucks — a problem that will continue as GM continues to
change its sales mix — played a major role.
Cars and crossovers accounted for 58 percent of GM's July production,
and GM will continue to boost production of cars and crossovers in the
But even with more cars in its lineup, GM will struggle to replace the
revenues lost when sales of full-sized SUVs and pickups collapsed.
Consider the Chevy Malibu, one of the few GM nameplates selling well
this year. The Malibu's average transaction price is $22,329, according
to data from the Power Information Network. That's what consumers paid
for the vehicle from July 1-27.
By contrast, the Chevrolet Silverado 1500 pickup sells for $26,326, and
the Chevrolet Tahoe averages $38,264.
So even a fully loaded Malibu can't touch a Tahoe.
But GM doesn't have much choice. CEO Rick Wagoner has declared that the
consumer shift away from big trucks is permanent, and his product plans
Over the next year and a half, GM says it will introduce 19 new
vehicles, 18 of which are either cars or crossovers. The first one to
come will be the Chevrolet Traverse crossover next month.
In 2011, Chevrolet will add a minicar, and GM is considering small cars
for its Saab, Cadillac and Saturn brands.
The highest-profile car in GM's future is the Chevrolet Volt, a plug-in
hybrid that will debut in 2010. But this compact sedan will carry a
hefty price tag approaching $40,000, so it may be fated to remain a
small-volume niche vehicle.
In his conference call with reporters and analysts last week, company
CFO Ray Young said he is confident GM can stabilize its cash flow. In
June, GM disclosed plans to close four truck plants by 2010, and reduce
annual truck production capacity by 500,000 units.
All these cost-cutting moves will conserve precious cash. But Young
added: "Ultimately we're going to have to grow the business."
While the market for full-sized pickup market will rebound, it will
never return to its former glory, says Jim Hall, a former GM employee
and managing director of 2953 Analytics, a consulting firm in suburban
Hall and Cole say GM can survive, provided the economy doesn't crumble
between now and 2010. Says Cole: "If we don't have a recovery in the
next year or so, then we're really in trouble."