GM Posts Huge Loss

The cost of convincing its employees to leave the company led to another gaping loss in General Motors' (GM) second quarter.

GM lost $3.2 billion, or $5.62 a share, in the quarter, including a charge of $3.7 billion to fund employee buyouts as part of an ongoing cost-cutting campaign. A year ago, GM lost $987 million, or $1.75 a share, in the second quarter.

Excluding the buyout charge and other items, GM earned $1.2 billion, or $2.03 a share, on revenue of $54.4 billion in the quarter. The numbers were significantly better than Wall Street expected. In the year-ago quarter, GM lost $231 million, or 41 cents a share, on revenue of $48.5 billion.

Overall, GM's automotive operations earned an adjusted $362 million in the latest quarter, reversing a year-ago loss of about $900 million. GM North America lost $85 million before items, narrowing a $1.2 billion loss a year ago.

"The improvement is attributable to reductions in GM's cost base across a broad range of activities, including improvement in warranty and other quality-related costs and a reduction in ongoing pension expense, due largely to the success of the hourly attrition program," the company said.

GM also raised the estimate of what it expects to save from the buyout program and other cost-cutting measures to $6 billion this year, up from a previous estimate of $5 billion. "A major contributor to this improvement is the April 30 remeasurement of the U.S. hourly pension plans, which will result in a pretax pension expense reduction of about $700 million for the 2006 calendar year."

"Our turnaround has not just gained traction, it's accelerating into high gear," CEO Rick Wagoner said. "While significant work still remains, our ability to identify and initiate $9 billion in cost cuts over the course of the past year is unprecedented in this industry.

"We're particularly pleased with the speed with which our people have implemented our turnaround plan. Conventional wisdom is that you can't turn a ship as big as GM around quickly. We aim to prove that conventional wisdom wrong."

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