Analyzing General Motors (GM)

** Please be cognizant this is NOT a complete GM analysis. I've analyzed the parts which I thought were most important and couldn't do a full analysis due to time constraints. Sorry in advance.

• GM reported Q1 07 EPS of $0.17 vs. $0.87 consensus estimates, a surprise to the downside. EPS came below expectations, but auto net income enjoyed a large QoQ positive swing due to better mix and the positive effect of the restructuring plan and reduction in structural costs. Furthermore, GM reported higher revenues of 43.9 bn vs 40.8 bn consensus estimates.
  
  
• As of March 31st 07, GM had 24.7 bn in cash, which provides substantial liquidity with no material near-term maturities. A very positive sign, GM’s Auto operating cash flow was positive $300 mill in the quarter, which represents a $1.5 bn YoY improvement. GM ended the quarter with 13.3 bn in net debt.
  
  
• During the conference call management mentioned that cash flow for the year should be improved over 07 but still negative. 07's outlook calls for improved YoY auto net earnings and investors should be cognizant that capital expenditures are expected to increase but the aforementioned available liquidity remains very strong.
  
  
• Management confirmed that it needs to reduce $9 bn in structural costs on a running rate basis by end of 07. This will help GM achieve their 25% target of structural costs to revenues by 2010 and they would need to either identify a further $6 bn in cost reduction and/or to increase the revenue base.
  
  
• GM Europe generated $8.48 bn vs. estimates of $8.55-6 bn, The region's results were bad due to unfavorable commodities hedging, higher sales mix of smaller cars, and more sales in Russia as opposed to Western Europe combined for a drag. On the positive side, GM Europe reported best-ever 1st quarter auto sales, delivering 554k units, and increased production by 17k units.
  
  
• Despite strength in ResCap’s Int. segment and solid earnings from the Business Capital Group, losses in the US Mortgage unit led GMAC to report a net loss of $115 million. Operations were affected when market illiquidity significantly reduced the mark-to-market value of nonprime loans held for sale, in addition to higher delinquency rates and greater loan-loss exposures.
  
  
• The pressure on results is a function of the slow down in the residential mortgage business and GMAC’s quick response of increased provisions and actions to mitigate risk should dramatically improve ResCap’s Q1 loss of $910 million through the remainder of the year.
  
  
• On the positive side GMAC’s Auto Financing net more than doubled YoY. GMAC’s Automotive Finance business segment reported strong Q07 net income of 396 mil vs. 186 mil same period last year. New and used vehicle retail loans and lease originations totaled 624k units, up 18% sequentially.