General Motors Corporation 2007 Annual Report
|Investing - Corporation Reports|
|June 27 2008|
DEAR STOCKHOLDERS: A century is a long time to be in business. For General Motors, it’s been a century of leadership and achievements, of challenges and opportunities. A centennial is a great time to reflect on and celebrate the past. But for us, it’s more than that…it’s an opportunity to look forward to our next 100 years.
GM’s centennial comes at an exciting time for the auto industry, as we move aggressively to realize the potential of two huge trends that are transforming the global auto industry and society itself. The fi rst trend is the rapidly growing role, and importance, of emerging markets. 2007 was the auto industry’s sixth consecutive year of record global sales: about 71 million units.
That’s up about 24 percent in just six years – all of it attributable to emerging markets. Going forward, we expect the growth and importance of emerging markets to accelerate.
This extraordinary growth is helping to defi ne the second trend transforming our industry and world today, and that is the need to develop robust alternatives to our traditional almost-complete reliance on oil to power our vehicles. It’s clear that biofuels and advanced propulsion technologies will be required to address key societal issues of energy supply, energy security and CO2 emissions.
Together, these two enormous trends provide an extraordinary opportunity for GM to redefi ne ourself and to lead the reinvention of the global auto industry. We are committed to take full advantage of these two extraordinary trends to drive GM’s transformation from a 100-year-old company, to a company that is ready to lead for 100 years to come.
But fi rst things fi rst. To achieve the future that we envision for GM, we fi rst must complete the transformation of GM that we’ve been aggressively driving for several years.
2007 YEAR IN REVIEW
2007 was another year of important progress for GM, as we implemented further signifi cant structural cost reductions in North America, grew aggressively in emerging markets, negotiated an historic labor contract with our United Auto Workers union partners in the U.S., further developed a broad range of advanced propulsion technologies and, most importantly, introduced a series of breakthrough cars and trucks around the world.
We’re pleased with the improvement trend in our automotive results. But we know we have more work to do to achieve the profi tability and positive cash fl ow that we need, and that our stockholders expect and deserve. GM’s core automotive business generated record revenue of $178 billion in 2007, a $7 billion improvement over 2006. In total, GM generated $181 billion in revenue in 2007, compared with $206 billion in 2006. The decrease is primarily due to the deconsolidation of GMAC, following our sale of 51 percent of GMAC in November 2006.
Adjusted automotive earnings before tax, excluding special items, were $553 million in 2007, an improvement of nearly $900 million versus 2006, despite a slowing U.S. economy, weak market conditions in the U.S. and record high commodity costs – trends that will continue to impact our results in 2008.
GM’s total adjusted net loss in 2007, excluding special items, was $23 million, refl ecting a $1.1 billion loss attributed to our 49 percent stake in GMAC. While GMAC’s traditional auto fi nancing business performed well, those results were more than offset by massive losses in GMAC’s mortgage businesses.
Including special items, GM reported a loss of $38.7 billion, or $68.45 per diluted share in 2007. This loss is almost entirely attributable to the non-cash $38.3 billion special charge in the third quarter related to a non-cash valuation allowance against deferred tax assets. The valuation allowance has no impact on cash, and does not refl ect a change in the company’s view of its long-term fi nancial outlook.
While these results are disappointing, in many respects the bigger story for GM in 2007 is what went on behind the numbers – under the hood, if you will. Look under the hood, and we see that 2007 was a “tipping point” for GM in terms of structuring the company and building the product and technology momentum necessary to position us for sustained profi tability and growth in the rapidly changing global auto industry.
In 2007, we continued to aggressively implement the turnaround plan for North America that we initiated in 2005, starting with the successful launch of several great new cars and trucks. We began 2007 by winning both the North American Car and Truck of the Year awards, with the Saturn Aura and Chevy Silverado, respectively. In 2008, we won the North American Car of the Year award for the second year in a row, this time with the all-new Chevy Malibu sedan.
In between, the Cadillac CTS was named Motor Trend’s 2008 Car of the Year, the Buick Enclave luxury crossover was picked as Urban Wheel’s Truck of the Year, and the Chevy Corvette, Chevy Malibu and Cadillac CTS were picked as Automobile magazine “All Stars,” and as three of Car and Driver’s “10 Best Cars.”
In 2007, we continued to implement major improvements to our U.S. sales and marketing strategy. Over the past two years, we’ve re-focused our marketing efforts to emphasize the strength and value of our products and brands, cut incentives, reduced low-profit daily rental sales, introduced the industry’s best powertrain warranty coverage and worked to consolidate our Buick-Pontiac-GMC distribution channel. These actions have enabled us to stabilize our U.S. retail market share, improve average transaction prices and residual values, and reduce dealer inventories, despite challenging market conditions.
On the cost-side of our turnaround plan, we realized the full benefi t of our massive cost-reduction efforts in 2005 and 2006, with GM North America now running at an annual structural-cost base that is $9 billion less than in 2005. We also continued to make progress in our long-term effort to improve quality. As one example, in the latest J.D. Power vehicle dependability survey, Buick fi nished tied for fi rst place among all manufacturers, and Cadillac came in third. We’ve also witnessed, since 2005, an 89 percent reduction in vehicle recall campaigns involving safety and non-compliance.
And, very importantly, we also negotiated a new labor agreement with our primary union, the United Auto Workers, in 2007. In addition to effectively addressing our healthcare cost burden, as discussed below, this agreement will enable us to signifi cantly improve our competitive position in the U.S. I want to acknowledge the UAW leadership and membership for their willingness to work creatively with us to address some very tough issues, and their important role in reaching last year’s agreement.
ADDRESSING THE LEGACY COST BURDEN
We’ve also made tremendous progress on what has been probably our single-most challenging issue in recent years: GM’s healthcare and legacy cost burden. Our progress has been the result of a series of actions and agreements over the last several years affecting both salaried and hourly workers. In total, they represent a major milestone in reestablishing GM’s ability to be fully cost competitive in the U.S.
Consider that from 1993 through 2007, GM has spent a total of $103 billion in the U.S. to fund legacy pensions and retiree healthcare – an average of about $7 billion a year – a dramatic competitive and cash-flow disadvantage. Based on our recent actions and agreements, our U.S. hourly and salaried pension plans were over-funded by more than 20 percent at year-end 2007, and we do not expect to be required to make any cash contributions to these plans for the foreseeable future. In addition, U.S. salaried retiree healthcare has been capped beginning this year, and UAW retiree healthcare is scheduled to be paid exclusively from a new independent trust that we will establish on the later of January 1, 2010, or receipt of the necessary approvals.
The result of these and other actions in this area: we expect our cash spending on U.S. pensions and retiree healthcare to decline from the annual average of $7 billion over the last 15 years, to about $1 billion per year starting in 2010. That savings of approximately $6 billion a year offers us a tremendous opportunity to improve GM’s earnings and balance sheet, and to invest in new products and advanced propulsion technology. ...
Overall, in 2007, we made further major progress in advancing GM’s turnaround – but we need to do more. So, what’s next?
In 2008, we forecast continued solid growth in global vehicle sales, driven by the emerging markets of Asia, South America, and Central and Eastern Europe. In contrast, in the U.S., we anticipate continued headwinds in 2008, including a broad-based housing correction, higher gas prices and lower consumer confi dence, leading to a relatively weak overall economic environment and auto industry sales.
We are committed to continuing to take the actions to build our future, at the same time as we respond to the difficult U.S. market conditions.
As always, the most important element of our future success will be great cars, trucks and brands, and in 2008 we’ll work to build on the product momentum we gained last year by launching many exciting new vehicles throughout the world, including:
• The all-new Chevy Traverse mid-size crossover
Going forward, we have plans to further reduce our structural costs in North America by about $5 billion by 2011, beyond the $9 billion we have realized so far since 2005. Based on this, we are now targeting to reduce our global automotive structural costs from 34 percent of revenue in 2005 to 25 percent of revenue by 2010 –
We will continue to drive for rapid growth in emerging markets, which have grown from 20 percent of industry unit sales in 1997, to 38 percent in 2007. By 2017, we forecast that today’s emerging markets will account for more than half of industry unit sales, and our plan is to play a major role in this growth.
We will continue to pursue our advanced propulsion technology strategy with all the urgency we can muster, driven by the need to reduce oil imports, oil consumption and CO2 emissions around the world.
We will continue to drive the benefi ts of running the business in a globally integrated manner, which continues to be perhaps the most profound change taking place inside the company today.
And we’ll pursue these strategies with a strong and committed GM team. In March, I was pleased to announce several important moves to further strengthen our top leadership structure. We reestablished GM’s traditional President and Chief Operating Offi cer position, and promoted Fritz Henderson to this role. Fritz has had a broad range of experiences in leading three of our regions and in a number of other GM businesses over the years, and he’s made a tremendous contribution in each role.
I look forward to working closely with Fritz; Bob Lutz, who so capably leads our global product development team; Ray Young, just promoted to the Chief Financial Offi cer position; Tom Stephens, who was promoted to Executive Vice President and is leading our advanced propulsion technology initiatives; and the entire GM leadership team around the world.
Equally important, I look forward to continuing to work with our extremely talented and committed team of GM employees around the globe. To win in today’s hypercompetitive global auto business, we need a strong team at every level and in every position. At GM, we have that team in place, from boardroom to factory floor…and I feel privileged to work with a group of automotive professionals whom I consider to be the best team in the business.
GM today stands at the juncture between our fi rst and second centuries, between a tremendous heritage and a bright and exciting future. We’ve come a long way since the challenge of 2005, and still we have a lot of work ahead of us…but I believe that 2007 will stand as a tipping point in the history of GM, as we position the company for sustained competitiveness, profi tability and growth.
Everyone at our company is working hard to make GM the industry leader with great cars and trucks, great brands and great business results. It’s a position that GM has attained many times in our history, and one we desire to achieve again. We have the right strategy, the right products and technology and, most important, the right people to do it again, and we’re committed to making it happen. We appreciate your continued support as we work to make this vision a reality.
FROM TURNAROUND TO TRANSFORMATION… TO WINNING
Thanks to lots of hard work by many people, we’ve completed most of the tasks we laid out in 2005 to
Accomplished since the announcement of GM’s turnaround plan in 2005:
• North America structural cost reduced by $9 billion
PDF format, 5.4MB, 134Pages.
And we’re just getting started.
General Motors Corporation (GM) is engaged in the worldwide development, production and marketing of cars, trucks and parts. The Company develops, manufactures and markets vehicles worldwide through its four automotive regions: GM North America (GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM) and GM Asia Pacific (GMAP). Also, its finance and insurance operations are primarily conducted through GMAC LLC, the successor to General Motors Acceptance Corporation (GMAC LLC and General Motors Acceptance Corporation, or GMAC).
GMAC was a wholly owned subsidiary until November 30, 2006, when GM sold a 51% controlling ownership interest in GMAC to a consortium of investors (GMAC Transaction). GMAC provides a range of financial services, including consumer vehicle financing, automotive dealership and other commercial financing, residential mortgage services, automobile service contracts, personal automobile insurance coverage and selected commercial insurance coverage. (Google Finance)
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