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Minyan Mail: A Word on Autos

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"It wasn't hard to see the GM wreck coming... it just didn't seem to matter until now."

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More Auto thoughts from John Quarles (aka: "Quest", "The FNG", and "IT Boy"), a former analyst at Macke Asset Management:

What a Lemon.

You have to look deeper than the reported earnings. The sale of XM stock and a $540 M one-time tax benefit are responsible for all of the income in Q4. Of course, GM also backs out some entries like asset write downs- that money is more likely to be gone for good. Also note there is a $1.7 B gain on sale from GMH stock.

For me, the number to look at is income from continuing ops. It's now $ (2 M) vs $ 2.862 B last year, and $ 440 M in 3Q04. Yes, that's a two million dollar loss. GM Europe lost almost $1 B in the fourth qtr. GMAC earnings were down sequentially, and y/y.

Business model leverage? You have to conclude that there isn't any, as GM's total revenues for the qtr were up 5% y/y, yet they couldn't do jack anywhere below that line to improve margins. Part of that is probably due to the high reliance on fleet sales for passenger cars. This mix was 35.1% in 4Q04, and while below the 36.7% in 4Q03, it is still higher than the 31.7% average for all of 2003.

GM's reported cost of borrowing rose 50 bp sequentially, to 4.11% in 4Q04. Net financing receivables grew 14% y/y and 5% q/q. Off-lease gain on vehicle remarking went from $459 in 3Q04 to $22 in 4Q04; the $459 level was likely the result of accounting "magic" last qtr. Nonetheless, with GM leading recalls in 2004, I don't expect a reversal in this trend.


Thank you, my man. I'm both saddened and relieved to see that the anger wasn't all caused by me!

John has a position in GM. Macke has no positions in the securities mentioned

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