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Posted by on Aug 1, 2008 in Economy | 16 comments

New Economy Shocker: GM Loses $15.5 Billion In Quarter

In the latest bit of news that would have been absolutely unimaginable a decade ago, General Motors has announced that it has reported a $15.5 billion quarterly loss — yet another sign of the deteriorating economy and how high oil prices have dramatically changed the American public’s car-buying habits:

The General Motors Corporation reported a stunning second-quarter loss of $15.5 billion on Friday because of a dramatic decline in United States sales and charges for job cuts, plant closings and the falling value of trucks and sport utility vehicles.

G.M., the largest American automaker, said it lost $6.3 billion on operations in the quarter that ended June 30, and its worldwide revenues fell 18 percent.

But the company’s overall loss was inflated by $9.1 billion in special charges that included $3.3 billion for buyouts of hourly workers and $2.8 billion related to the bankruptcy filing of its former parts unit, the Delphi Corporation.

The dismal earnings reflected the impact of steadily falling vehicles sales in the overall United States market, and a huge shift by consumers away from the trucks and S.U.V.’s that were once G.M.’s most profitable vehicles.

The Detroit Free Press’ Tom Walsh asks if things could get worse for GM, outlining how the corporation has faced a perfect storm:

Lots of bad things have to happen to suffer a total loss that large, and that’s exactly what transpired:

• As gasoline prices soared in April and May, sales of large SUVs and pickup trucks tanked, causing GM sales in North America to fall by $10 billion, or 33% from year-ago levels.

• A 12-week strike at American Axle & Manufacturing also cut into sales, and GM helped the Detroit supplier end the strike by helping to cover the cost employee buyouts. Result: a $197 million charge against GM earnings.

• Other charges include a $3.3 billion hit for the cost of GM’s own buyout programs to reduce its head count; a $2.8 billion reserve for costs related to the Delphi Corp. bankruptcy; a $1.3 billion drop in the value of GM’s 49% interest in the GMAC financing unit; and $340 million in accounting changes due the recent contract settlement with the Canadian Auto Workers union.

The good news for GM, if we can call it that, is that most of the special charges against profits were not immediate drains on the company’s cash.

But in the larger picture, the bottom line is this:

Every day, another shoe is dropping in the economy.

And the sound you hear sounds like the entire stock of a shoe store falling to the floor…

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