That’s a lot of red ink
No matter how strong a company is, it can only suffer so many losses before requiring outside help or going bankrupt. The story of how General Motors Company (NYSE:GM) eventually sought both of those can be traced to its 2007 annual report, which revealed a staggering $38.7 billion loss for the year when it was released on Feb. 12, 2008.
Despite a narrow fourth-quarter profit of $46 million (mostly due to tax benefits), the automaker still set an industry record for annual losses. This was only partly due to one-time charges, such as the buyouts of 19,000 hourly workers and $2.8 billion in liabilities stemming from former auto-parts division Delphi Automotive PLC (NYSE:DLPH), which had been spun off years earlier and which had suffered its own financial problems leading up to the global crisis. Skyrocketing gas prices and economic weakness had put a double whammy on the American auto industry, and as its largest representative, GM felt the pain most acutely. Its North American revenue plummeted by nearly $10 billion in the second quarter alone. Despite sales of 9.4 million vehicles, GM’s revenue still plunged to $181 billion, a 12% drop from 2006.
This report came only four months after the Dow Jones Industrial Average reached its all-time high of 14,165 points, and it was one of the clearest signals yet that the U.S. economy was on shaky ground. In those four months, the index had lost 13% of its value. An investor who escaped the market that day after hearing about GM’s woes would have avoided the 47% drop to come, but virtually no one would have the impeccable timing to avoid the worst of the Great Recession.
Unable to continue its current employment practices profitably, GM took the unprecedented step of offering its entire U.S. hourly workforce lucrative contract buyouts, which could amount to as much as $140,000 for 10-year veterans willing to forgo future pension and health care coverage. None of GM’s efforts could stave off further losses, which amounted to another $30.9 billion in 2008. By mid-2009, GM had filed for bankruptcy. A combined $77 billion in bailout funds have been injected into GM and its former finance arm, GMAC (now Ally Financial), of which $31 billion remained outstanding five years after GM reported its record loss. However, all is not lost. GM’s 2011 net income amounted to $7.6 billion — a record annual profit earned only four years after a record-breaking loss.
The article Two of the Worst Losses in Business History originally appeared on Fool.com and is written by Alex Planes.
Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight and occasional attempts at comedy.The Motley Fool recommends Chevron, FedEx, General Motors, and United Parcel Service (NYSE:UPS).
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