JB: This is Backstory, a daily conversation with New York Times reporters on the stories they’re covering. I’m Jane Bornemeier, editor of New York Times radio.
Today I’m talking to Jim Vlasic in Detroit about enormous losses reported by General Motors in their 2nd quarter. Bill thanks for talking to me today.
BV: Oh I’m glad to be on, thanks.
JB: So General Motors has had some historic losses in the 2nd quarter, give us some other details I mean how big are these losses and put them in perspective with the other US carmakers…
BV: Well, General Motors announced a 15.5 billion dollar loss for the 2nd quarter which I believe it’s among their largest quarterly losses ever. It’s significant there’s no question about it, some of this was attributed to charges that they took for a variety of issues: job cuts, factory closings, continued payments for their Delphi part subsidiary that’s in bankruptcy...but they lost over 6 billion dollars on operations alone…and that’s a large number and it goes to how difficult their 2nd quarter has been in the US market for GM and the other automakers…
JB: And is this largely a result of falling sales or what can you attribute these losses to exactly…
BV: Ah...the sales are down substantially, GM US sales for the three-month period were down 20%...this is a big number and not just sales but revenues were down almost 33% which means not only they’re selling a lot less vehicles, they’re not making money on them either…and this has to do with just absolute demise of the big SUV market and the weakness in the pickup truck market which are the two traditional profit centers for GM, Ford and Chrysler…
JB: This may be a little of hair-splitting but is it clear that people aren’t just buying cars at all…or that they’re not buying that kind of cars, the big cars that General Motors makes and they’ve actually switched to smaller cars and therefore are benefitting different automakers than GM…
BV: Well,both…the economy is clearly…keeping…people out of the car market…that had been a new year’s path…through June… first half of the year overall sales for all manufacturers were down 10%...The projections are that 2008 will be one of the lowest levels of overall sales of the industry in about 15 years…So yes…people are not going to buy new cars like they have in years past…Secondly, they’re fleeing from big trucks with their 15 miles per gallon engines into smaller vehicles, particularly in the May-time period, May and June, their drop off in sales of bigger vehicles was unprecedented really, and people are just stampeding to smaller cars...unfortunately for the Detroit automakers while their small car sales are going up, they really weren’t prepared for the kind of demand they’re seeing so ironically they’re short on inventories…
JB: What do the latest sales figures up-to-date tell you overall about the health of the US car market?
BV: Earlier in the year automakers thought that the 2nd half of the year would be better and there would be a recovery…It’s not looking that way, it’s looking like the economy and the continued pressures in the mortgages and credit and just …disposable income in general…are keeping people out of the car market and they’re not necessarily going to come back in the second half of 08. This may be a downturn that stretches well into 2009.
JB: Is it your sense that the carmakers are in a complete panic or that there are some calm processes going on to try to change production or to do something positive besides cutting costs and laying off workers to turn this situation around…?
BV: Well, we’ve been in a huge restructuring process for all the Detroit automakers for the last three years, I mean… between the three of them they have already cut more than a hundred thousand blue-collar jobs since 2006, there have been more cuts, there’s a ten thousand white-collar jobs being cut right now between GM, Ford and Chrysler …so they’re cutting costs dramatically… but it’s almost like the scuba diver who’s under water and hoping his oxygen doesn’t run out before he can get to the surface… I mean these companies are burning through their cash reserves and… yes they can cut costs but you can only go so far on that regard, they’re hoping that their cash and their liquidity will hold out while they’re making very dramatic shifts in production from the trucks and SUV’s that were stable to smaller cars…
JB: Who turns out to have had the more foresight about what was about to happen among American companies and among companies overall, who was the most prescient?
The three American companies are all pretty much in the same boat, in the sense that they have been very heavily weighted toward the bigger vehicles and of course those vehicles generated incredible profits in the 90’s and earlier this decade so I would say that General Motors is further ahead in globalizing their product development which allows them to spread their costs around the world but on the other hand to look at the profit and loss statements GM is hurting the worst there so it’s a mixed blessing…Clearly the one company that has done the best in this market so far’s been Honda…Honda never built a V8 engine, never built a pickup truck, never built a full size SUV…That was their strategy for many years and they never deviated from it but on top of that they have put their resources and their efforts into fuel efficient cars that have very high quality and this is exactly what consumers are looking for today.
JB: Bill thanks so much for your time…
BV: Oh sure no problem, thank you.
That was Times’ reporter Bill Vlasic on the Quarterly Losses reported by GM. For New York Times radio I’m Jane Bonnemeier and I’ll be back next week with another edition of Backstory. To subscribe with the Backstory Podcast go to nytimes.com /backstory. July 31st, 2008
NOTE FROM THE BLOGGER: Words and phrases highlighted in red are defined individually in separate posts.
Phrases highlited in black and brown are present perfect tenses.
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