General Motors investors expect the No. 1 U.S. automaker to post a steep second-quarter loss on Friday, reflecting the pressure from a deepening downturn in the U.S. auto industry.
GMAC, GM's former financing arm, on Thursday posted a $2.48 billion loss, including a $716 million write-down on leases from the slumping value of GM's big SUVs.
Analysts said the loss at GMAC, in which GM retains a 49 percent stake, pointed to an additional charge of some $2 billion for GM tied to the sinking resale values of its slow-selling trucks.
That charge would come on top of the $2 billion in pretax losses GM has already detailed from the impact of a strike during the June-ended quarter by the United Auto Workers union at a key supplier and some of its own plants.
GM's cash burn rate and its remaining liquidity at the end of the second-quarter would be a crucial indicator for investors handicapping the automaker's chances of success under its latest turnaround plan, analysts said.
"People are prepared for the worst, but it is still going to be pretty ugly," said Mirko Mikelic, a portfolio manager at Fifth Third Bank. "In this environment, cash is king."
Ratings agency Standard & Poor's on Thursday downgraded GM to "B-minus" and warned the automaker was on track to burn through roughly $4 billion per quarter this year, sending GM bonds to a record low price.
After losses totaling $51 billion over the previous three years, and a $3.25 billion loss in the first quarter, GM's second quarter coincided with a sharp rise in U.S. gas prices that undercut demand for the SUVs and trucks that make up about 60 percent of its current sales.
GM's global auto sales dropped 5 percent in the second quarter as double-digit growth in Asia, Latin America and Brazil was more than offset by a 20 percent drop in sales in GM's home market.
The automaker had been losing market share to transplant automakers such as Toyota Motor, a solid No. 2 in U.S. sales behind GM, a situation expected to worsen due to GM's greater reliance on light trucks.
GM unveiled a restructuring plan in mid-July to shore up its liquidity through $10 billion of cost cuts, including thousands of salaried job cuts, up to $4 billion of asset sales and some new borrowing.
GM had about $24 billion of cash and almost $7 billion of undrawn credit at the end of the first quarter.
"The downturn in the economy is really driving their direction right now. They are gong to have to conserve cash wherever they can probably for the next year," said Mikelic, who owns GM bonds.
GMAC Results Worrisome
GMAC, the former captive finance unit in which the automaker sold a 51 percent stake to Cerberus Capital Management, said GM was liable for another $1.55 billion in payments to offset losses from unprofitable leases.
The finance company said GM had already paid out some $350 million for losses on vehicle leases, which lost value sharply in the past quarter as the resale value of SUVs plunged.
In response, GMAC has decided to pull back on lease financing, a step expected to cost GM some sales since leasing has typically afforded customers the ability to get a lower monthly payment than buying a vehicle outright.
GMAC, which is carrying $30 billion in GM vehicle leases, said it expected to reduce the share of leases to about 9 percent of GM's sales, about half of the current level.
JP Morgan analyst Himanshu Patel said he expected GM would face additional charges of some $2.3 billion during the second-quarter because of GMAC's losses on vehicle leases.
Burnham Securities analyst David Healy expects GM's North American automotive unit to report losses of $2 billion before taxes. GM's share of the loss from GMAC would be additional.
"I think it will be probably be 2010 before they have enough profitable small vehicles to get the overall company back into the black," Healy said of GM.
Analysts on average expect GM to post a second-quarter loss before charges of $2.67 per share, according to Reuters Estimates. The automaker has said its quarterly loss would be "significant." It has not given a timetable for returning to profitability.