A Generally Massive Loss for GM

Pssst! Buddy. See that $0.08-per-share profit General Motors (NYSE: GM) reported, soundly whipping analyst forecasts of a $0.54 loss? Well, it's not real. The profit didn't come from selling cars, but instead resulted from tax benefits that analysts didn't see coming.

The market turned tail when it realized that the report was not what it first thought. It wasn't a smoke-and-mirrors ploy, just not the big deal GM seemed to first suggest.

And it's not just that it was a bad earnings report under the surface. The full-year loss was the worst that General Motors has ever posted. Despite a money-saving labor agreement, building $9 billion in annual cost savings over the past two years, and managing to eke out 3,000 more car sales than Toyota Motors (NYSE: TM) for 2007, it posted a massive full-year loss of $38.7 billion. Sure, like the tax benefits that boosted profits for the quarter, these weren't all operating losses. They were almost all related to a noncash $38.3 billion charge in the third quarter related to the valuation allowance against deferred tax assets. Yet the picture painted is clearly not one of a healthy car company.

It may be time for GM to follow the lead of Chrysler and opt for a smaller footprint. Standing conventional Detroit wisdom on its head, Chrysler is saying that profits lie in it being a smaller company, with just a few models rather than the sprawling enterprises offering dozens of models like Toyota, Ford (NYSE: F), and Honda (NYSE: HMC). Even Ford realizes it needs to concentrate on being a Ford manufacturer and is hoping to unload a number of its prestige brands.

The turnaround plan GM is currently operating under makes Ford's "The Way Forward" plan look like a four-lane expressway, and GM's faltering sales are hurting others, including parts suppliers and tire makers. Goodyear (NYSE: GT) lost a title of its own to Bridgestone partially because of the ailing domestic car market.

The fourth quarter showed just how vulnerable GM's position is in the key North American market. Worldwide sales actually rose 3% in 2007 to 9.4 million units, but U.S. sales were off more than 6% for the year.

A bigger headache for GM is becoming profitable again. Although it has offered all 74,000 of its employees a buyout, consistent profitability still seems a long way off. Cost-cutting measures like the UAW agreement don't see full benefit being realized until 2010 or 2011.

As it stands now, GM is up on blocks and won't be getting any traction for the foreseeable future.