How is GM Still Alive?

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Market Movers

by Felix Salmon

Main

The Upside of Moral Hazard Unemployment Spikes

Aug 1 2008 8:00AM EDT

In the world of eye-popping earnings, GM has managed to beat even Exxon Mobil. Exxon made a profit of $11.7 billion in the second quarter; GM has manged to come out with a $15.5 billion loss, or $27.33 a share.

How this company is still operating as a going concern is really beginning to baffle me:

GM, turning 100 this year, in 2007 reported its largest annual loss, $38.7 billion, after a tax-accounting change. It hasn't posted a profit since 2004.

Check out the penultimate line in GM's 20 pages of "financial highlights". It shows a "total stockholders' deficit" of $57 billion, up from a deficit of less than $4 billion a year ago. Yet the decline in market capitalization over that time is less than a quarter of that: the company was worth about $18 billion then and is worth about $6 billion now. Was the market really pricing in $40 billion of losses a year ago? And more generally, how and why is the market keeping this insolvent company afloat?

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