Cooking the Books at the “New General Motors”

by Richard H. Frank

The buzz word for the past two years within the Obama Administration has been “transparency.”  I, along with most Americans, interpret the word to mean the truth and nothing but the truth.  Is that too much to ask of our elected Representatives?  I think not.  However, we continue to be deluged with political spin on every topic that the Administration is desperate to take credit for including the calculation for unemployment, jobs saved or created and the latest financial performance reported by Government-owned General Motors.

The liberal news media in this Country points to the miraculous turnaround by the company from historic loses reported in 2009 to the $4.7 billion in profit for the fiscal year ending 2010.  The report fails to mention that their net income amounted to a meer $.9 billion.

Nonetheless, let us examine the company’s performance using “transparency” as follows:

  • The reported $4.7 billion profit is based on sales of $135.6 billion and equates to 3.4%.
  • Net income of $.9 billion on the same sales equals 0.7%.
  • Selling prices for their products on the average increased 7% and probably are responsible for the majority of the profit.
  • Incentives averaged $3397/vehicle or 9.9% of sales
  • More than half of the revenue generated came from China where units sold were up 2.6 million while in the U.S. units sold were up 2.2 million.
  • Operating profits in the U.S. totalled $800 million, a major boost of $5.7 billion over the previous year.

All of these indicators for improvement look promising; however, the question remains – “Are they sustainable?”  General Motors still owes the taxpayers $27.2 billion from the original bailout of $49.9 billion. Repayment of the remaining $27.2 billion is contingent upon sale of shares of stock held by the government which appears unlikely given the real performance numbers for the company. The performance noted above is also the result of the Corporation enjoying a tax exemption of up to $49.4 billion on future earnings, a little known goody contained within TARP.  This certainly doesn’t equate to working on a level playing field when compared to companies such as Ford Motor that releases a real transparent earnings statement in their annual report. At best one might conclude that the New GM broke even in 2010. Financially, the country would have done better to invest in an interest bearing saving account as would most investors that know a good stock buy when they see one.

General Motors reports cash reserves approaching $35 Billion with net cash equal to $1.0 Billion. Obviously this must be TARP money as the performance does not support these balances reported.

Ford Motor Co. P&L 2010 Summary – Annual Report (in $billions):

  • Net Income – $6.56
  • Operating Income – $8.30
  • Income after Tax $7.57
  • Tax Paid  = $.73 or 9%
  • Gross Cash $20.5
  • Net Cash $1.4

The question remains “Why couldn’t the same or better performance have been achieved at GM without Government intervention following the traditional route to bankruptcy?”  We may never know the answer, however it would have saved the taxpayers $49.9 billion which is now part of the massive national deficit.

Ford Motor Company survived without the Government – why not General Motors?  The answer is straight forward and simple.  Policies, and a reward to the Administration’s Union supporters.

A transparent view of the new General Motors is the best prediction of their ability to survive.  Don’t hold your breath waiting for that sort of analysis so long as the Obama Administration is involved. We may not be able to change what was done in the case of GM, but we must insist on an honest accounting on the part of our government.

One Response

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