General Motors is rinsed and fresh

| Wednesday, April 7, 2010
| |

First, the Obama administration put General Motors Co. through a "quick-rinse bankruptcy," a term that even some top bankruptcy attorneys said they'd never heard.

Today, the automaker announced its financial results for the final six months of 2009, using what it called "fresh-start accounting."

That's not a feel-good phrase.

Basically, fresh-start accounting requires a new company that is formed from a bankruptcy proceeding to revalue all its assets and liabilities to reflect their fair value.

But GM's fresh start didn't eliminate chronic financial losses. The automaker today reported a net loss of $4.3 billion in the second half of the year after emerging from bankruptcy.

GM Chief Financial Officer Chris Liddell said GM is making good progress in rewamping its operations, though, and said the automaker could turn a profit this year on an operating basis.

Liddell discussed GM's financial performance in a conference call this morning with reporters and analysts. Here are several things I thought were interesting:

--Unlike AT&T and other companies that nearly made Rush Limbaugh's head explode when they took huge charges to account for Obamacare, GM said health-care reform will have a "modest-to-negligible effect" on its finances.

That's mainly because GM has limited its health-care obligation by putting hourly retirees in a union-run health-care trust and capping benefits for salaried workers.

--Liddell refused to let a reporter goad him into saying that churning out profits this year would be a cinch.

"I would rather underpromise and hopefully over-deliver," Liddell, Microsoft's former CFO, said. "The company has perhaps been guilty of doing it the other way in the past."

--GM's 10-K annual report for 2009, which required 1 million new accounting entries as a result of fresh-start accounting, took 1,000 man-years to complete, Liddell said.

No wonder accounting is such a hot career field these days.

1 comment:

Anonymous said...

So in reality they have no way to make money other than hide the losses?

Post a Comment