GM Reports Improved Second-Quarter Financial Results: Net Loss Just $3.2 Billion! - VIDEO ENHANCED STORY

• Reported net loss of $3.2 billion, or $5.62 per share
• Adjusted net income of $1.2 billion, or $2.03 per share
• Structural cost reduction target increased to $9 billion
• Increased liquidity to $22.9 billion, supported by improved cash flow
• Record revenue of $54.4 billion

Editor's Note*: Hey, I'm all for GM surviving and prospering and getting back to making great cars that America and the world wants, but I'm a bit tired of the bullshit financial reporting that permits public companies to laud their results when they actually have staggering loses (do you hear that Auto-by-tel?). In any event, here's the press release...
Marc J. Rauch, EVP & Co-Publisher

DETROIT - July 26, 2006: General Motors Corp. today reported significantly improved 2006 second quarter financial results. Global automotive operations were profitable on an adjusted basis, excluding special items, for the first time since 2004, and the company posted a second consecutive quarter of record revenue.

GM reported a net loss of $3.2 billion, or $5.62 per share, for the second quarter of 2006, compared with a reported loss of $987 million, or $1.75 per share, for the year-ago quarter. The net loss for the quarter included a total of $4.3 billion, or $7.66 per share, in special items that reflected a previously announced $3.7 billion after-tax charge related to the successful accelerated attrition program, in which 34,400 hourly employees participated. Other special items included a loss related to the pending sale of 51 percent of GMAC, a gain on the disposition of Isuzu stock, and restructuring charges.

CLICK HERE to watch the video clip of Fritz Henderson, General Motors chief financial officer, talk about the significance of improved 2006 second quarter financial results.

CLICK HERE to watch the clip of Fritz Henderson talk about GM's 2006 second quarter adjusted net income of $1.2 billion.

GM posted 2006 second-quarter adjusted net income, excluding special items, of $1.2 billion, or $2.03 per share, on record revenue of $54.4 billion. This reflects a $1.4 billion improvement from the year-ago adjusted loss of $231 million, or $0.41 per share, on revenue of $48.5 billion.

“With the support of our employees, unions, dealers, suppliers and stockholders, we are moving rapidly and aggressively to address our challenges and restructure GM for future success,” said Rick Wagoner, GM chairman and chief executive officer. “It’s rewarding to see our automotive business return to profitability on an operating basis and a clear sign that we’re on the right track, but there is more work to be done.”

Wagoner also said the success of the accelerated attrition program in the United States , along with other cost initiatives, led GM to increase its structural cost reduction target in North America to $9 billion from $8 billion on an average annual running rate basis by the end of 2006.

“Our turnaround has not just gained traction, it’s accelerating into high gear,” Wagoner said. “While significant work still remains, our ability to identify and initiate $9 billion in cost cuts over the course of the past year is unprecedented in this industry.

“We’re particularly pleased with the speed with which our people have implemented our turnaround plan. Conventional wisdom is that you can’t turn a ship as big as GM around quickly. We aim to prove that conventional wisdom wrong.”

GM Automotive Operations

GM’s global automotive operations earned $362 million on an adjusted basis, excluding special items, representing an improvement of $1.3 billion year-over-year. This is due primarily to significant improvement in GM North America and continued profitability improvement in other regions.

GM’s global market share in the second quarter was 13.8 percent, up from the first quarter market share of 13.1 percent, but down from 15.1 percent last year. The change in global market share is largely attributable to last year’s highly successful employee discount incentive program in North America and lower fleet sales in Europe.

“We know we have to develop and build great cars and trucks to grow our business and we’re encouraged by the recent success of our newest vehicles, particularly in the U.S. market,” Wagoner said. “Our new full-size SUVs, the Chevrolet Impala and HHR, and Pontiac G6 have all posted strong sales this quarter. Our newly launched vehicles will account for about 30 percent of our U.S. retail sales this year and grow to 40 percent next year.”

GM North America posted an adjusted net loss of $85 million, excluding special items, in the second quarter of 2006, a $1.1 billion improvement over the prior year period. The improvement is attributable to reductions in GM’s cost base across a broad range of activities, including improvement in warranty and other quality-related costs and a reduction in ongoing pension expense, due largely to the success of the hourly attrition program.

The attrition program and other cost initiatives have enabled GM to increase its structural cost reduction target in North America. GM expects to realize approximately $6 billion in cost savings in 2006, up from the previously announced $5 billion. A major contributor to this improvement is the April 30 remeasurement of the U.S. hourly pension plans, which will result in a pre-tax pension expense reduction of about $700 million for the 2006 calendar year.

“We have made solid progress in implementing our North America turnaround plan in the first half, posting more than $2 billion worth of improvements at GMNA, excluding special items,” Wagoner continued. “More significantly, the impact of our cost-reduction efforts on the bottom line will accelerate in the second half. This, combined with building sales momentum from our new cars and trucks and improved marketing, should enable us to continue to improve year-over-year results significantly.”

GM Europe posted adjusted earnings, excluding special items, of $124 million for the quarter , an improvement of $94 million compared with earnings of $30 million in the second quarter of 2005. The improved earnings reflect favorable material costs and improvements in pricing.

“Our European operations continue to gain momentum, posting a second consecutive profitable quarter, excluding special items ,” Wagoner said. “We are pleased with Saab’s global market performance, posting a sales increase of 24 percent for the first half of the year, and the continued growth of the Chevrolet brand in Europe. We are also encouraged by the response to the new Opel/Vauxhall Corsa, unveiled at the recent London Motor Show and scheduled to arrive in showrooms this fall.”

On an adjusted basis, excluding special items, GM Asia Pacific posted earnings of $167 million in the second quarter, down slightly from last year’s earnings of $183 million. The difference is more than accounted for by the loss of equity income from Suzuki following the reduction in GM’s equity stake. Market share in the region increased to 6.7 percent in the second quarter of 2006, up from 6.2 percent during the second quarter of 2005, driven by strong sales in China.

GM Latin America, Africa and Middle East posted adjusted earnings, excluding special items, of $156 million, a significant increase of $131 million compared with last year’s second quarter results of $25 million. This reflects an increase in volume and improved pricing.

GMAC

General Motors Acceptance Corporation (GMAC) reported record net income of $898 million for the second quarter of 2006, up $82 million from second quarter 2005 earnings of $816 million. GMAC’s mortgage business, ResCap, reported increased results, while the Automotive Finance and Insurance businesses reported lower earnings.

“GMAC continues to perform well despite pressure on profit margins from rising interest rates,” Wagoner said. “We remain on track to complete the sale of 51 percent of GMAC to a consortium of investors in the fourth quarter.”

GMAC’s Automotive Finance operations reported earnings of $251 million, down $115 million from $366 million earned in the second quarter of 2005. The decrease is due to a

combination of continued margin pressures, lower remarketing results in the U.S. and Canada and higher consumer credit provisions, slightly offset by certain favorable non-U.S. tax rate changes and increases in investment income.

ResCap earnings were $547 million in the second quarter of 2006, up from the $300 million earned in the year-ago period, due primarily to the $259 million gain on sale of its equity investment in a regional homebuilder. Excluding the gain on sale, ResCap earnings declined slightly in comparison to the same period last year. Mortgage originations were $47 billion for the second quarter, representing an increase from the $42.6 billion in the second quarter of last year.

GMAC’s insurance operations generated net income of $80 million for the quarter, down $20 million from earnings of $100 million in the second quarter of 2005, primarily due to a combination of lower capital gains and wholesale losses incurred in the quarter related to hail storms in the Midwest. In addition, GMAC’s insurance operations maintained a strong investment portfolio, with a market value of $7.7 billion on June 30, 2006 , including after-tax net unrealized capital gains of $545 million.

GMAC provided a significant source of cash flow to GM through the payment of a $1.4 billion dividend in the second quarter.

GMAC continues to maintain adequate liquidity with cash reserve balances at June 30, 2006 of $22.7 billion, including $17.2 billion in cash and cash equivalents and $5.5 billion invested in marketable securities.

Cash and Liquidity

GM continues to bolster its liquidity position, a key element to fund the North America turnaround plan. GM generated adjusted operating cash flow of $700 million in the second quarter of 2006, a more than $2 billion improvement versus the year-ago period. Cash, marketable securities, and readily-available assets of the Voluntary Employees’ Beneficiary Association (VEBA) trust totaled $22.9 billion on June 30, 2006 , up from $21.6 billion on March 31, 2006.

*